oversight

Audit of the Federal Employees Dental and Vision Insurance Program Premium Rate Proposal of GEHA Connection Dental Federal for 2018

Published by the Office of Personnel Management, Office of Inspector General on 2017-08-09.

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

                                UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                                Washington, DC 20415


  Office of the
Inspector General                                                                             Report Number 1J-0E-00-17-036

                                                                   August 9, 2017

       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 GEHA Connection Dental
                                            Federal for 2018

       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 GEHA Connection Dental
       Federal for 2018. Our objective was to determine whether costs proposed were in
       accordance with the terms of Contract Number OPM01-FEDVIP-01AP-8 (Contract) and
       Federal regulations. The audit included a review of the Plan’s 2016 certified annual
       accounting statement and 2018 proposed premium rates for FEDVIP operations.


       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 2018 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 2018 contract at a later date, however it would exclude a review of the initial 2018
       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.




                                     PROCUREMENT SENSITIVE: FOR OFFICIAL USE ONLY
                     This report is non-public and should not be further released unless authorized by the OIG, because it may contain
                     confidential and/or proprietary information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the

                II   Privacy Act, 5 U.S.C. § 552a.
                                                                                                                                            II
                                                                                                                                       2

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 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.
The Plan’s responsibilities under the Contract are carried out at its office located in Lee’s
Summit, Missouri. Section I.11 of the Contract includes a provision, Inspection of Services –
Fixed Price, 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.

Our previous full-scope audit of the Plan (Report No. 1J-0E-00-15-016), dated November 16,
2015, identified one instance of non-compliance with the previous seven-year contract.
Specifically, the Plan incorrectly reported a claim overpayment as being recovered. The Plan
has since updated its policy and provided a copy to OPM to resolve the finding and close this
issue. No other concerns were identified from the previous audit.

OBJECTIVES, SCOPE, AND METHODOLOGY

We conducted a limited-scope performance audit of the Plan’s FEDVIP premium rate
proposal for 2018. Our audit objective was to determine whether costs proposed for contract
year 2018 were reasonable and equitable 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 2016 certified annual accounting statement and
2018 proposed premium rates for FEDVIP operations as of May 31, 2017. The audit
fieldwork was conducted at the Plan’s office in Lee’s Summit, Missouri from June 5 through
June 9, 2017. Additional audit work was completed at our Cranberry Township,
Pennsylvania office.

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

                           PROCUREMENT SENSITIVE: FOR OFFICIAL USE ONLY
           This report is non-public and should not be further released unless authorized by the OIG, because it may contain
           confidential and/or proprietary information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the

      II   Privacy Act, 5 U.S.C. § 552a.
                                                                                                                                  II
                                                                                                                                     3

in the internal control 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 2018 were in accordance with the
terms of the Contract and Federal regulations, we performed the following audit steps:

   2016 Annual Accounting Statement Review

      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 that we observed while on-site to
       ensure that the claims were accurately reported.
      We reviewed the cost center descriptions and expense allocation methods to
       determine if the costs were accurately charged to the FEDVIP in accordance with the
       Federal Acquisition Regulations Subpart 31.2.
      We recalculated the loss ratio based on the supporting documentation provided by the
       Plan to determine if its 2016 profit or loss was accurately calculated and disclosed to
       OPM in the annual accounting statement.

       2018 Rate Proposal Review

      We traced the data used to develop the Plan’s 2018 proposed rates back to supporting
       documentation.
      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.

RESULTS OF THE AUDIT




                         PROCUREMENT SENSITIVE: FOR OFFICIAL USE ONLY
         This report is non-public and should not be further released unless authorized by the OIG, because it may contain
         confidential and/or proprietary information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the
         Privacy Act, 5 U.S.C. § 552a.
                                                                                                                                II
                                                                                                                                       4




The results of the audit were discussed with Plan officials at an exit conference on
July 11, 2017. 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 2018 FEDVIP
premium rates.

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

cc: Kathleen M. McGettigan
    Acting Director

   Jason Simmons
   Chief of Staff

   Dennis D. Coleman
   Chief Financial Officer and Acting Chief Management Officer

   Kathie Whipple
   Deputy General Counsel

   Jason Foster
   Associate General Counsel

   Anne Easton
   Acting Director, Planning and Policy Analysis

   Mark W. Lambert
   Associate Director, Merit System Audit and Compliance

   Janet L. Barnes
   Director, Internal Oversight and Compliance

   Alan Spielman
   Director, Healthcare and Insurance

                           PROCUREMENT SENSITIVE: FOR OFFICIAL USE ONLY
           This report is non-public and should not be further released unless authorized by the OIG, because it may contain
           confidential and/or proprietary information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the

      II   Privacy Act, 5 U.S.C. § 552a.
                                                                                                                                  II
                                                                                                                                   5

Laurie Bodenheimer
Deputy Director, Healthcare and Insurance


Deputy Assistant Director, Federal Employee Insurance Operations



Senior Advisor, Federal Employee Insurance Operations


Chief, Policy and Internal Controls Group


Chief, Audit Resolutions


Senior Health Actuary




                       PROCUREMENT SENSITIVE: FOR OFFICIAL USE ONLY
       This report is non-public and should not be further released unless authorized by the OIG, because it may contain
       confidential and/or proprietary information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the

  II   Privacy Act, 5 U.S.C. § 552a.
                                                                                                                              II