oversight

                              UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                   Washington, DC 20415





  Office of the
Inspector General

                                                                            Report Number 1J-0C-00-18-030

                                                      July 30, 2018

            MEMORANDUM FOR                             

                                     Chief, Individual Benefits and Life

            FROM:
                                     Chief, Special Audits Group
                                                                                                        
            SUBJECT:                 Audit of the Federal Employees Dental and Vision Insurance Program
                                     Premium Rate Proposal of FEP BlueDental for 2019

            The U.S. Office of Personnel Management’s (OPM) Office of the Inspector General (OIG) has
            conducted a limited-scope performance audit of the Federal Employees Dental and Vision
            Insurance Program (FEDVIP) premium rate proposal of FEP BlueDental (Plan) for 2019. Our
            objective was to determine whether costs proposed by the Plan were in accordance with the
            terms of Contract Number OPM01-FEDVIP-01AP-6 (Contract) and Federal regulations. The
            audit included a review of the Plan’s 2017 certified annual accounting statement and its 2019
            proposed premium rates for FEDVIP operations. The results of our audit did not identify any
            findings and no corrective action is necessary.

            This memorandum is being provided to OPM’s Program Office and will be used by OPM’s
            Office of Actuaries to negotiate the Plan’s 2019 FEDVIP premium rates. Under section 8M of
            the Inspector General Act, the OIG makes redacted versions of its audit reports available to the
            public on its webpage. The OIG reserves the right to perform a full-scope audit of the Plan’s
            2019 contract at a later date, however it would exclude a review of the initial 2019 premium rate
            proposal.

            BACKGROUND

            The FEDVIP was created on December 23, 2004, by the Federal Employee Dental and Vision
            Benefits Enhancement Act of 2004 (Act). The Act provided for the establishment of programs
            under which supplemental dental and vision benefits are made available to Federal employees,
            retirees, and their dependents.

            OPM has overall responsibility to maintain the FEDVIP website, be a liaison with Federal
            agencies, facilitate the promotion of the FEDVIP through Federal agencies, be responsive on a
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timely basis to the carrier’s requests for information and assistance, and perform, as provided by
the Act, functions typically associated with insurance commissions, such as the review and
approval of rates, forms, and education materials.

OPM contracts with the Plan to provide dental insurance benefits to FEDVIP participants. FEP
BlueDental is a joint endeavor of the BlueCross BlueShield Association, Participating Plans and
DeCare Dental (DeCare). The participating plans hold the initial underwriting risk for the Plan
and retain certain member field servicing administrative responsibilities. The overall benefits
administration of the Plan rests primarily with DeCare at its offices in Eagan, Minnesota.
Section I.11 (Inspection of Services – Fixed Price) of the Contract includes a provision which
allows for audits of the Plan’s FEDVIP operations. It is the responsibility of the Plan’s
management to establish and maintain a system of internal controls and comply with applicable
FEDVIP laws and regulations.

This was the OIGs first audit of the Plan.

OBJECTIVES, SCOPE, AND METHODOLOGY

We conducted a limited-scope performance audit of the Plan’s FEDVIP premium rate proposal
for 2019. Our audit objective was to determine whether costs proposed for contract year 2019
were in accordance with the terms of the Contract and Federal regulations.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient and 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.

The audit included a review of the Plan’s 2017 certified annual accounting statement and its
2019 proposed premium rates for FEDVIP operations as of May 31, 2018. The audit fieldwork
was conducted at DeCare’s offices in Eagan, Minnesota from June 11 through June 15, 2018.
Additional audit work was completed at our Washington, D.C. and Cranberry Township,
Pennsylvania offices.

In planning and conducting the audit, we obtained an understanding of the Plan’s internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,
we primarily relied on substantive tests of transactions and not tests of controls. Additionally,
since our audit would not necessarily disclose all significant matters in the internal control
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structure, we do not express an opinion on the Plan’s system of internal controls taken as a
whole.

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

To determine whether the costs proposed for contract year 2019 were in accordance with the
terms of the Contract and Federal regulations, we performed the following audit steps:

2019 Rate Proposal Review

x   We traced the data used to develop the Plan’s 2019 proposed rates back to supporting
    documentation.
x   We reviewed the supporting documentation to identify any material variances with the
    premiums, enrollment, and claims expenses reported to OPM. We reviewed the benefit
    changes, trends, completion factors, and other actuarial assumptions to ensure that they were
    reasonable and equitable.

2017 Annual Accounting Statement Review

x	 We reconciled the premiums received, as reported in the Plan’s annual accounting statement,
   to the BENEFEDS cash transfer report to determine if the information was accurate.
   Additionally, we reconciled the paid claims reported in the annual accounting statement to a
   system generated report to ensure that the claims were accurately reported.
x	 We reviewed the expenses and allocation methods to determine if the costs were accurately
   charged to the FEDVIP in accordance with the Federal Acquisition Regulations Subpart 31.2.
x	 We recalculated the loss ratio based on the supporting documentation provided by the Plan to
   determine if its 2017 profit or loss was accurately calculated and disclosed to OPM in the
   annual accounting statement.

RESULTS OF THE AUDIT

Rate Proposal Review

The results of our review showed that the Plan’s initial 2019 FEDVIP premium rate proposal
was in accordance with the Contract and Federal regulations. We did not identify any findings
during our review and no corrective action is necessary.
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Annual Accounting Statement Review

The results of our review showed that the Plan had sufficient policies and procedures in place to
ensure that its 2017 annual accounting statement was accurately reported to OPM. We did not
identify any findings during this review and no corrective action is necessary.

The results of the audit were discussed with Plan officials at an exit conference on July 19, 2018.
OPM’s Program Office and Office of Actuaries may discuss the results of the audit with Plan
officials. The Plan has been notified that this memorandum will be issued directly to OPM’s
Contracting Office to assist in finalizing the Plan’s 2019 FEDVIP premium rates.

If I can be of assistance during your review of this memorandum, please contact me at
                   .

cc: 	 Honorable Jeff T. H. Pon
      Director

    Honorable Michael J. Rigas 

    Deputy Director    


    Michael D. Dovilla 

    Chief of Staff 


    Kathleen M. McGettigan

    Chief Management Officer 


    Dennis D. Coleman

    Chief Financial Officer 


    Theodore M. Cooperstein 

    General Counsel   


    Alan P. Spielman 

    Director, Healthcare and Insurance 


    Edward M. DeHarde 

    Assistant Director, Federal Employee Insurance Operations 

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Deputy Assistant Director, Federal Employee Insurance Operations


Chief, Audit Resolution and Compliance


Branch Chief, Audit Resolution and Compliance


Senior Health Actuary