oversight

Audit of the Federal Employees Dental and Vision Insurance Program Operations as Administered by Humana Dental for Contract Years 2014 and 2015

Published by the Office of Personnel Management, Office of Inspector General on 2018-02-06.

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

U.S. Offic E OF PERSONNEL MANAGEMENT
   OFFICE OF THE INSPECTOR GENERAL
             OFFICE OF AUDITS




  Final Audit Report

   Audit of the Federal Employees Dental and Vision
   Insurance Program Operations as Administered by
          Humana Dental for Contract Years
                    2014 and 2015
              Report Number 1J-0J-00-17-016
                     February 6, 2018
             EXECUTIVE SUMMARY 

        Audit of the Federal Employees Dental and Vision Insurance Program Operations
                               as Administered by Humana Dental
Report No. 1J-0J-00-17-016                                                                        February 6, 2018


Why Did We Conduct the Audit?            What Did We Find?

The objective of the audit was to        We determined that the Plan needs to strengthen its procedures and
determine whether costs charged to the   controls related to its annual accounting statements, claims
Federal Employees Dental and Vision      processing, fraud and abuse program, performance guarantees, and
Insurance Program (FEDVIP) and           rate proposals.
services provided to its members for
contract years 2014 and 2015 were in     Specifically, our audit identified the following deficiencies that
accordance with Contract Number          require corrective action:
OPM01-FEDVIP-01AP-09 and
applicable Federal regulations.           1. 	 The Plan overstated income taxes applied to FEDVIP for
	
                                               2014 and 2015.
	
What Did We Audit?
                                          2. 	 The Plan overpaid premium tax in 2014 by $555,120.

The Office of the Inspector General       3. 	 The Plan failed to terminate one member in a timely manner
has completed a performance audit of           and did not have controls in place to recover overpayments
Humana Dental’s (Plan) annual                  from ineligible members.
accounting statements, claims
processing, fraud and abuse program,      4. 	 The Plan failed to coordinate some benefits with other
	
                                               insurance providers.
	
performance guarantees, and rate
proposals as they relate to FEDVIP        5. 	 The Plan paid claims to two debarred providers.
operations for contract years 2014 and
2015. Our site visit was conducted        6. 	 The Plan failed to meet several performance standards that it
from February 27 through March 3,              guaranteed for 2014 and 2015.
2017, at the Plan’s office in Roswell,
                                          7. 	 The Plan overestimated claims projections when negotiating
Georgia. We completed additional
                                               the contract rates with the U.S. Office of Personnel
audit work at our offices in                   Management.
Washington, D.C. and Cranberry
Township, Pennsylvania.




                                                       i
	
                 ABBREVIATIONS

Act		        Federal Employee Dental and Vision Benefits Enhancement Act
             of 2004
COB		        Coordination of Benefits
Contract 	   Contract Number OPM01-FEDVIP-01AP-9
DHHS		       U.S. Department of Health and Human Services
FEDVIP 	     Federal Employees Dental and Vision Insurance Program
FEHBP 	      Federal Employees Health Benefits Program
FWA		        Fraud, Waste, and Abuse
OIG		        Office of the Inspector General
OPM		        U.S. Office of Personnel Management
Plan		       Humana Dental




                                 ii
	
                        TABLE OF CONTENTS

                                                                                                                      Page
	
       EXECUTIVE SUMMARY ......................................................................................... i
	

       ABBREVIATIONS ..................................................................................................... ii
	

I.     BACKGROUND ..........................................................................................................1
	

II.    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................2
	

III.   AUDIT FINDINGS AND RECOMMENDATIONS.................................................5
	

       A. ANNUAL ACCOUNTING STATEMENT REVIEW............................................5
	

            1. Overstated Income Taxes...................................................................................5
	

            2. Overpaid Premium Tax ......................................................................................6
	

       B. CLAIMS PROCESSING REVIEW ........................................................................7
	

            1. Claims Paid for Ineligible Members ..................................................................7
	

            2. Coordination of Benefit Errors ..........................................................................7
	

       C. FRAUD AND ABUSE PROGRAM REVIEW.......................................................8
	

            1. Claims Paid to Debarred Providers ....................................................................8
	

       D. PERFORMANCE GUARANTEES REVIEW ......................................................10
	

            1. Failure to Meet Performance Standards ...........................................................10
	

       E. RATE PROPOSAL REVIEW ..............................................................................11
	

            1. Overestimated Claims Projections ..................................................................11
	

       APPENDIX (The Plan’s Response to the Draft Report, dated October 27, 2017) 


       REPORT FRAUD, WASTE, AND MISMANAGEMENT
                             I. BACKGROUND

This report details the results of our audit of the Federal Employees Dental and Vision Insurance
Program (FEDVIP) operations as administered by Humana Dental (Plan) for contract years 2014
and 2015. The audit was performed by the U.S. Office of Personnel Management’s (OPM)
Office of the Inspector General (OIG), as authorized by the Inspector General Act of 1978, as
amended.

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, act as a liaison and facilitate
the promotion of the FEDVIP through Federal agencies, be responsive on a timely basis to the
carriers’ requests for information and assistance, and perform functions typically associated with
insurance commissions such as the review and approval of rates, forms, and educational
materials.

OPM’s Contracting Office contracts with Humana to provide GHQWDO coverage to Federal
beneficiaries enrolled in the Plan under the FEDVIP. The Plan’s responsibilities under Contract
Number OPM01-FEDVIP-01AP-9 (Contract) are carried out at its offices located in
Roswell, Georgia. Section I.11 of the Contract includes a provision, Inspection of Services –
Fixed Price, which allows for audits of the Plan’s FEDVIP operations.

This was the OIG’s first audit of the Plan’s administration of the FEDVIP. The initial results of
this audit were discussed with Plan officials during an exit conference on July 18, 2017. A draft
report was provided to the Plan on September 28, 2017, for its review and comment. The Plan’s
response to the draft report was considered in preparation of this final report and is included as
an Appendix.




                                                1                     Report No. 1J-0J-00-17-016 

II. OBJECTIVES, SCOPE, AND METHODOLOGY
 OBJECTIVES

 The main objective of the audit was to determine whether costs charged to the FEDVIP and
 services provided to its members for contract years 2014 and 2015 were in accordance with the
 terms of the Contract and applicable Federal regulations.

 Our specific audit objectives were to determine if:

    Annual Accounting Statement Review
    x The premium earned, as reported in the Plan’s Annual Accounting Statements, reconciles
      to the premium rates and the premium funds transferred from BENEFEDS.

    x   Administrative expenses were allowable, allocable, and reasonable in compliance with
        the Contract and Subpart 31.2 of the Federal Acquisition Regulation.

    Claims Processing Review
    x	 The Plan paid claims in accordance with the terms of the Contract, its benefit brochures,
       and its internal policies and procedures.

    Fraud and Abuse Program Review
    x	 The Plan has an effective fraud and abuse program, and if potential fraud cases are being
       reported to OPM in accordance with the FEDVIP Fraud, Waste, and Abuse (FWA)
       Memo.

    x	 Any dental claims were paid to debarred providers.

    Performance Guarantees Review
    x	 The Plan accurately measured its performance and complied with any standards
       guaranteed in the Contract.

    Rate Proposal Review
    x	 The Plan accurately developed its FEDVIP premium rates and proposed profit margins
       similar to the contracted rate.

 SCOPE AND METHODOLOGY
 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 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.


                                                 2		                 Report No. 1J-0J-00-17-016 

The audit included a review of the Plan’s annual accounting statement, claims processing, fraud
and abuse program, rate proposals, and performance guarantees as they relate to FEDVIP
operations for contract years 2014 and 2015. Our site visit was conducted at the Plan’s office in
Roswell, Georgia, from February 27 through March 3, 2017. Additional audit work was
completed at our offices in Washington, D.C. and Cranberry Township, Pennsylvania.

The Plan reported the following premium revenue, dental benefits paid, administrative expenses,
and profit for contract years 2014 and 2015 in its annual accounting statements:

      Contract           Premium             Benefits        Administrative
                                                                                     Profit
       Year              Revenue              Paid             Expenses
        2014
        2015
        Total

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
structure, we do not express an opinion on the Plan’s system of internal controls taken as a
whole.

We also conducted tests of accounting records and other auditing procedures as we considered
necessary to determine compliance with the Contract and 5 CFR Part 894. Exceptions noted in
the areas reviewed are set forth in the “Audit Findings and Recommendations” section of this
report. With respect to the items not tested, nothing came to our attention that caused us to
believe that the Plan had not complied, in all material respects, with those provisions.

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 costs charged to the FEDVIP and services provided to its members for
contract years 2014 and 2015 were in accordance with the terms of the Contract and applicable
Federal regulations, we performed the following audit steps:

   Annual Accounting Statement Review
   x We reconciled the premiums reported by the Plan to the premiums transferred from
     BENEFEDS for contract years 2014 and 2015.


                                                 3                     Report No. 1J-0J-00-17-016 

    x	 We met with Plan personnel to determine what allocation methodology was used for
       administrative expenses, and we recalculated the allocation percentages based on direct
       and indirect costs to verify that the correct percentages were applied.

    Claims Processing Review
    x	 We judgmentally selected a random sample of 100 claims paid in 2015, totaling $12,110,
                                                                     1
       from a universe of           claims paid, totaling $            , to determine if they were
       properly paid in accordance with the terms of the Contract, the Plan’s benefit brochures,
       and its internal policies and procedures.

    Fraud and Abuse Program Review
    x	 We reviewed all dental claims from 2014 and 2015 to determine if any were paid to
       debarred providers.

    x	 We reviewed the Plan’s fraud and abuse program to determine if it was sufficient in
       detecting and reducing fraud, waste, and abuse in accordance with the Contract and the
       FEDVIP FWA Memo.

    Performance Guarantees Review
    x	 We reviewed the performance guarantees to determine if the Plan accurately measured its
       performance and complied with any standards guaranteed in the Contract.

    Rate Proposal Review
    x	 We traced the data used to develop the Plan’s 2014 and 2015 premium rate proposals
       back to supporting documentation and compared the rate proposals to the annual
       accounting statements to determine if the Plan accurately developed its FEDVIP
       premium rates in accordance with the Contract.

The sample mentioned above that was selected and reviewed in performing the audit was not
statistically based. Consequently, 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.




1
  The actual claims data for 2015 varied from the amounts reported by the Plan in the 2015 annual accounting
statement due to timing and retroactivity.

                                                        4		                      Report No. 1J-0J-00-17-016 

III. AUDIT FINDINGS AND RECOMMENDATIONS

A. Annual Accounting Statement Review

   1. Overstated Income Taxes                                                            Procedural

      The Plan overstated income taxes for FEDVIP operations in the 2014 and 2015 annual
      accounting statements.

      According to the Plan’s audited financial statements, "Humana allocates its federal income
      tax liability among the subsidiaries of the consolidated return group based on the ratio that
      each subsidiary’s separate return tax liability for the year bears to the sum of the separate
      return liabilities of all subsidiaries.”

                           During our review of the Plan’s annual accounting statements, we found
      The Plan applied     that the Plan incorrectly used the parent companies highest tax
     the wrong income      percentages of       for 2014 and       for 2015, instead of the correct
     tax percentage to     allocated and weighted percentages of        and       for the dental
        its FEDVIP         subsidiary, respectively.
        operations.
                             When we showed the Plan the difference in tax percentages between the
      FEDVIP annual accounting statements and the audit financial statements, the Plan agreed
      that it inadvertently applied the wrong tax rates. The Plan proceeded to calculate the correct
      tax percentages, which we reviewed and agreed with for audit purposes.

      The overstated tax percentages created higher expense and lower profit amounts in the 2014
      and 2015 annual accounting statements by approximately $          and $         ,
      respectively.

      Recommendation 1

      We recommend that the Plan resubmit the 2014 and 2015 annual accounting statements to
      OPM using the correct allocated and weighted income tax percentages.

      Plan Response:

      The Plan agreed with the recommendation and provided revised annual accounting
      statements for OPM’s review.

      Recommendation 2

      We recommend that the Plan update its policies and procedures for reporting FEDVIP
      operations to OPM to include using the correct allocated and weighted income tax
      percentages for the dental subsidiary in accordance with its audited financial statements.

                                                   5                     Report No. 1J-0J-00-17-016 

  Plan Response:

  The Plan agreed with the recommendation and provided updated reporting policies and
  procedures for OPM’s review, which it will begin using for CY 2016 to properly allocate
  and weight income tax percentages for the dental subsidiaries.

2. Overpaid Premium Tax                                                            Procedural

  The Plan paid $555,120 in premium tax for 2014 that was no longer required or assessed.
  Additionally, the Plan stated that it did not attempt to recover the amount it overpaid.

  According to the Plan’s audited financial statements, there was a ruling that premium taxes
  on the dental product were no longer required beginning January 1, 2014.

  Additionally, section K.9b of the Contract states that only             We identified an
  administrative expenses consisting of actual, allocable, allowable,        unallowable
  and reasonable expenses incurred in the adjudication of claims or          expense for
  incurred in the carrier's overall operation of the business are        premium taxes that
  chargeable to the program.                                                was no longer
                                                                             applicable.
  During our review of the Plan’s expenses, we found that it paid a
  premium tax of $555,120 for 2014, but premium tax was not paid for 2015. After additional
  research, the Plan showed us that the tax was no longer required beginning January 1, 2014.
  The Plan did not provide a reason why it prepaid the tax for 2014, or why it did not recover
  the amount paid.

  Because the payment was made for a non-existing tax, the amount is considered an
  unallowable charge in accordance with section K.9b of the Contract, resulting in $555,120 of
  overstated expenses and understated profits for the 2014 annual accounting statement.

  Recommendation 3

  We recommend that the Plan resubmit its 2014 annual accounting statement to OPM with the
  $555,120 unallowable expense properly reported as profit.

  Plan Response:

  The Plan agreed with the recommendation and explained why it could not recover the
  overpaid tax. The Plan provided a revised 2014 annual accounting statement for OPM’s
  review that removes the unallowable expense and reports it as additional profit.




                                               6                    Report No. 1J-0J-00-17-016 

B. Claims Processing Review 


    1. Claims Paid for Ineligible Members                                                 Procedural

       The Plan failed to terminate one member in a timely manner. Additionally, we found that the
       Plan does not have controls in place to recover overpayments for ineligible members.

       Section II of the Contract states that services are only available to eligible FEDVIP members.
       Additionally, section K.9b of the Contract states that claim costs consist of payments made
       and costs incurred for insurance on behalf of FEDVIP enrollees, including care management,
       less any overpayments, refunds, or other credits received.

       During our review of 100 sampled claim payments, we found that the Plan incorrectly paid
       one claim for an ineligible member. Documentation showed that the member was retro-
       actively terminated as of August 8, 2015, the Plan was notified of the termination on
       November 18, 2015, and the member continued to receive services on December 1, 2015.

                            When we inquired about this issue, the Plan did not explain why the
     The Plan had no
                            payment was made for a termed member, but it did disclose to the
     controls in place
                            auditors that the Plan had no controls in place to recover funds paid on
        to recover
                            services for individually termed members. The Plan stated that it has
     overpayments to
                            since corrected this issue by recovering funds paid for individually
         ineligible
                            termed members beginning in 2016.
     members prior to 

           2016.
	
                            Due to the Plan not recovering funds paid for individually termed
       members prior to 2016, there was a significant risk of overcharges to the FEDVIP in earlier
       years, leading to higher claims and premiums.

       Recommendation 4

       We recommend that the Plan review past claims to identify overpayments made for ineligible
       members and attempt to recover those funds. The Plan should also provide OPM with a copy
       of the updated policies and procedures for recovering overpayments from individually
       termed members.

       Plan Response:

       The Plan agreed with the recommendation and provided updated eligibility policies and
       procedures for OPM’s review. It will also go back and recover any overpayments since
       April 2016. State regulatory requirements and limitations only allow the Plan to recover
       funds going back 18 months from the original process date.

   2. Coordination of Benefit Errors                                                      Procedural

       The Plan failed to coordinate benefits with other insurance providers for 4 out of 100 claims
       sampled.
                                                    7                    Report No. 1J-0J-00-17-016 

      In accordance with the Contract and Federal regulations, the carrier is responsible for
      coordinating benefits with other insurance carriers. The First Payor Process will apply if the
      member is enrolled in the Federal Employees Health Benefits Program (FEHBP) since the
      FEHBP carrier will pay first and the FEDVIP carrier will pay second. The FEDVIP carrier is
      responsible for facilitating this process.

      During our review of claim payments and the coordination of               The Plan failed to
      benefits (COB) process, we found that the Plan did not complete          coordinate benefits
      COB on 4 of the 100 claims sampled. After further review, we              for several claims
      found that COB was not being completed for several claims related           related to one
      to one specific health insurance carrier.                                  health insurance
                                                                                     provider.
      After consulting with the Plan about this issue, we determined that
      the Plan’s claims system edit was not automatically detecting COB eligible claims. The Plan
      is reviewing this issue to determine why the system edit was not working.

      Due to the failure of the system edit, COB was not performed for several claims related to
      one health insurance carrier, resulting in higher claims and premium costs.

      Recommendation 5

      We recommend that the Plan identify and fix its claims system edit and COB policies and
      procedures to ensure that first payer benefits are properly coordinated for all health and
      dental insurance providers.

      Plan Response:

      The Plan agreed with the recommendation and provided an updated COB claim process
      flowchart for OPM’s review.

C. Fraud and Abuse Program Review

   1. Claims Paid to Debarred Providers                                                   Procedural

      The Plan paid claims to two debarred dental providers listed on both the U.S. Department of
      Health and Human Services’ (DHHS) Listing of Excluded Providers and OPM’s Debarment
      and Sanctions Listing.

      The DHHS website (https://oig.hhs.gov/faqs/exclusions-faq.asp) states that "OIG’s List of
      Excluded Individuals/Entities … provides information to the health care industry, patients
      and the public regarding individuals and entities currently excluded from participation in
      Medicare, Medicaid and all other Federal health care programs."

      Additionally, the Plan stated in its internal policies and procedures that it uses OPM’s
      Debarment and Sanctions Listing to review any new debarred providers.


                                                   8                     Report No. 1J-0J-00-17-016
 During our review of paid claims for debarred providers, we determined that the Plan paid 

 dental claims to two debarred providers for contract years 2014 and 2015. The two dental 

We identified       providers who received payments were published on both the DHHS
	
claims paid to      Listing of Excluded Providers and OPM’s Debarment and Sanctions
two debarred        Listing. We reviewed the Plan’s policies and procedures for
    dental          credentialing/debarment and found them to be specific with respect to its
  providers.        health insurance line of business. Even though these general policies and
                    procedures were provided for our dental audit, we reminded the Plan that
 debarred dental providers are not allowed to receive Federal funds and there should be
 specific policies and procedures in place for FEDVIP.

 The Plan was unaware that the two dental providers were debarred from receiving Federal
 funds, but it assured us that it has a credentialing process in place. The Plan also stated that it
 is working with its Special Investigations Unit to develop a process going forward to deny
 claims from debarred providers.

 As a result of the Plan paying claims to two debarred dental providers, there is a risk of 

 FEDVIP funds being used inappropriately and a risk of members continuing to receive 

 services from a provider identified as a patient safety risk. 


 Recommendation 6

 We recommend that the Plan update its FEDVIP policies and procedures for reviewing 

 debarred dental providers by ensuring that any providers listed on either DHHS or OPM’s 

 debarment lists are removed from the Plan’s provider network and flagged from receiving 

 payments in its claims system. 


 Plan Response:

 The Plan agreed with the recommendation and provided updated debarment policies and
 procedures for OPM’s review, which helps identify and stop payments to debarred
 providers.

 Recommendation 7

 We recommend that the Contracting Office issue additional guidelines to the FEDVIP
 carriers with the same debarment requirements used in the FEHBP to help stop payments to
 debarred providers and increase patient safety.

 Plan Response:

 The Plan agreed with the recommendation and is awaiting guidelines from OPM’s 

 Contracting Office.





                                               9                      Report No. 1J-0J-00-17-016 

D. Performance Guarantees Review

   1.		 Failure to Meet Performance Standards                                           Procedural

      The Plan did not achieve or measure all of its performance standards that were guaranteed for
      2014 and 2015.

      Section 8 of the Contract states that the Plan guarantees performance standards related to
      telephone, written and email inquiries.

      Additionally, the Contract lists the Plan’s proposed performance            The Plan failed
      guarantees with general descriptions and measuring methods for each         to meet several
      guarantee.                                                                   performance
                                                                                    guarantees.
      We reconciled the Plan’s 2014 and 2015 performance results to the
      guarantees for customer service measures reported to OPM. Our review showed that the
      Plan reported results below standards for the following guarantees:

         x	 The Plan failed to meet its Average Call Hold Time guarantee of       seconds for 4 out
            of 12 months in 2014 and 5 out of 12 months in 2015.

         x	 The Plan failed to meet its Call Abandonment Rate guarantee of percent or less for
            3 out of 12 months in 2014 and 1 out of 12 months in 2015.

         x	 The Plan failed to measure three guarantees for Written Inquires and three guarantees
            for Email Inquiries in both years. Additionally, once the Plan measured these six
            guarantees for the purpose of our audit, it failed to meet five of the six guarantees
            each year.

      The Plan was aware of these issues and stated that they were mostly due to enrollment
      increases in 2014 and a computer system update in 2015. The Plan also reported that it is
      actively working with OPM to improve the areas where it did not meet the guarantees.

      As a result of the Plan missing the above performance guarantees, the FEDVIP members did
      not receive the level of service for which they paid. Furthermore, because the Plan did not
      measure all performance standards, OPM was unable to determine if all guarantees were met
      and if any corrective action was needed.

      Recommendation 8

      We recommend that the Plan take corrective action to address the deficiencies with the
      Average Call Hold Time and Call Abandonment Rate performance.




                                                  10		                  Report No. 1J-0J-00-17-016 

       Plan Response:

       The Plan agreed with the recommendation and implemented a performance action plan
       that was provided for OPM’s review.

       Recommendation 9

       We recommend that the Plan update its policies and procedures to properly measure all
       performance standards that were guaranteed in the Contract.

       Plan Response:

       The Plan agreed with the recommendation and implemented a process to track inquiries.
       It also added the missing performance standards to the quarterly report cards for OPM’s
       review.

E. Rate Proposal Review

   1. Overestimated Claims Projections		                                                  Procedural

       The Plan overestimated its claims projections in the premium rate proposals by
       approximately    percent in 2014 and      percent in 2015.

       As part of a fixed-price contract with prospective price redetermination, the Plan is required
       to submit an annual rate proposal to OPM using the most accurate data to estimate the
         The Plan’s          premium rate for the next contract period. In section 5 of the Contract,
       overestimated         the Plan also projected a pre-tax profit margin of five percent.
     claims projections
     for 2014 and 2015       During our review of the premium rate proposals, we compared the
           led to an         Plan’s annual accounting statements to the rate proposals in order to
      additional $           identify any major variances in claims, administrative costs, and profit.
      million in profit.     Our review showed that the Plan overestimated the claim amounts
                             proposed to OPM for 2014 and 2015 by the following amounts:

          x	 In the 2014 rate proposal, the Plan estimated $               in paid claims. The Plan
             actually incurred only $             , creating a $5 million variance that went directly
             to profit.

          x   In the 2015 rate proposal, the Plan estimated $              in paid claims. The Plan
              actually incurred only $             , creating a $5.6 million variance that went
              directly to profit.

       As a result of the overestimated claims, with enrollment staying level, the Plan’s pre-tax
       profits increased percentage points in 2014 and       percentage points in 2015, over the
       proposed profit margin of percent, leading to a total profit of percent for 2014 and
       percent for 2015. Since the Contract stated a projected pre-tax profit margin of only
                                                    11		                  Report No. 1J-0J-00-17-016 

percent, our review showed that the overestimated claims led to higher profits and a higher
than required premium rate. Because this is a seven-year fixed price contract with
prospective price redetermination, we are not questioning the dollar amount of the excess
profits since OPM approves the rates each year. Instead, OPM should work with the Plan to
negotiate a reduced rate next year using more accurate claims estimates.

Recommendation 10

We recommend that the contracting officer require the Plan to modify its FEDVIP rate
proposal model to include more than six months of claims experience in projecting the
following year’s rates, or it should reduce the completion factor when annualizing the claims
experience.

Plan Response:

The Plan agreed with the recommendation and would welcome a longer period of claims
experience for projecting the following year’s proposed rates.

Recommendation 11

We recommend that the contracting officer and the Plan ensure that the premium rate
proposals comply with the projected    percent pre-tax profit listed in the Contract.

Plan Response:

The Plan agreed with the recommendation and would like to work with the Contracting Officer
to ensure that profits are in line with the Contract.




                                           12                    Report No. 1J-0J-00-17-016 

                                      APPENDIX
                                                                           500 West Main Street
                                                                            Louisville, KY 40202

                                                                                 T
                                                                                 C

                                                                                     @humana.com

Group Chief
Special Audits Group
Office of Inspector General
1900 E Street NW
Washington DC 20415

Dear

Enclosed is Humana’s response to the Draft Audit Report number 1J-0J-00-17-016 detailing the
results of the Federal Employees Dental and Vision Insurance Program (FEDVIP) audit for
Contract years 2014 and 2015.

We have provided our Plan Responses following each of the auditor’s recommendations. Some
of the responses include additional documentation or data which is numbered and attached.

Per your instructions attached is Humana’s response both in Adobe PDF and Microsoft Word
formats. All attachments (Humana financial statements, P&P’s, work processes . . .) are
presented in Adobe PDF format.

In addition to our audit response, we have included a separate letter which outlines our request to
hold confidential some of our audit responses and attachments. It is our intent that the responses
and attachments, for which confidentiality has been requested in the attached letter, will not be
part of any congressional committee review or posted on the OIG website.

If you require any additional information, please contact me via e-mail:          @humana.com
or via phone at                 .

Sincerely,


Business Executive

Attachments (MS Word & Adobe PDF):

        Draft Audit Report (1J-0J-00-17-016) and Humana Responses

                                                                      Report No. 1J-0J-00-17-016
      Attachment 1: Revised 2015 (Current Yr.) / 2014 (Prior Yr.) Audited Annual Statement
      Attachment 2: Policy & Procedure for Reporting FEDVIP Operations
      Attachment 3: Humana Dental Financial Recovery Process
      Attachment 4: Federal Plans – COB Claim Process
      Attachment 5: Policy & Procedures for Review of Debarred Dental Providers
      Letter dated 27 OCT 17: Objection to Public Release of Specific Responses and
      Attachments

cc:
      Office of Personnel Management
      Chief, Individual Benefits and Life


      Humana 

      Actuarial Director 

      Employer Group (Dental/Vision/Life/Disability) 





                                                                 Report No. 1J-0J-00-17-016 

                                    Deleted by OIG
                              Not Relevant to Final Report
Recommendation 1

We recommend that the Plan resubmit the 2014 and 2015 annual accounting statements to
the U.S. Office of Personnel Management (OPM) using the correct allocated and weighted
income tax percentages.

Plan Response 1

The Plan agrees with the OIG’s recommendation for item 1.

Attachment 1: Revised 2015 (Current Yr.) / 2014 (Prior Yr.) Audited Annual Statement
is included with this response.

Recommendation 2

We recommend that the Plan update its policy and procedures for reporting FEDVIP
operations to OPM to include using the correct allocated and weighted income tax
percentages for the dental subsidiary in accordance with its audited financial statements.

Plan Response 2

The Plan agrees with the OIG’s recommendation for item 2.

Beginning with the CY 2016 Annual Accounting Statement submission, the Plan will
incorporate the revised policy and procedure for reporting FEDVIP Operations,
including those addressing allocated and weighted income tax percentages for the
dental subsidiaries.

Attachment 2: Policy & Procedure for Reporting FEDVIP Operations is included with
this response.

                                    Deleted by OIG 

                              Not Relevant to Final Report 


Recommendation 3

We recommend that the Plan attempt to recover the $555,120 in overpaid premium tax and
resubmit its 2014 annual accounting statement to OPM with the $555,120 unallowable
expense properly reported as profit.

Plan Response 3 


The Plan agrees with the OIG’s recommendation for item 3, with one exception. 



                                                                  Report No. 1J-0J-00-17-016 

The attached CY 2014 revised Annual Statement (attachment 1) reflects the removal of
$555,120 as an allowable expense and instead includes $555,120 in additional profit.

The Plan paid the 2014 premium tax in March of 2015, because OPM’s notification of
FEDVIP’s Preemption of the DC Premium Tax (Letter,                   , Assistant
General Counsel) was not received until May 27, 2015; and the Contract amendment
excluding premium tax was not completed until March 9, 2016.

However, in order to recover the 2014 premium tax paid, the Plan would be required to
first amend the annual statements for each impacted legal entity. Once the Annual
statements were revised the Tax Department would be required to amend and file
multiple premium tax returns. The schedule to meet the statute of limitations for
revised tax returns is March 1, 2018. Given the time constraints and cost of amending
the returns the Plan has decided not to pursue recovery of the 2014 Premium Tax.

                                   Deleted by OIG 

                             Not Relevant to Final Report 


Recommendation 4

We recommend that the Plan review past claims to identify overpayments made for ineligible
members and attempt to recover those funds. The Plan should also provide OPM with a copy
of the updated policies and procedures for recovering overpayments from individually
termed members.

Plan Response 4

The Plan agrees with the OIG’s recommendation for item 4.

The Plan is identifying termed members for whom claims were paid post-termination
beginning in April of 2016 and forward. The Plan can recover funds up to 18 months
from the original process date. Any services paid prior to April of 2016 cannot be
recovered due to state regulatory requirements and limitations.

Attachment 3: Humana Dental Financial Recovery Process is included with this
response.

                                   Deleted by OIG 

                             Not Relevant to Final Report 


Recommendation 5

We recommend that the Plan identify and fix its claims system edit and COB policies and
procedures to ensure that first payer benefits are properly coordinated for all health and
dental insurance providers.
                                                                 Report No. 1J-0J-00-17-016
Plan Response 5 


The Plan agrees with the OIG’s recommendation for item 5.

Attachment 4: Federal Plans – COB Claim Process is included with this response.

                                   Deleted by OIG
                             Not Relevant to Final Report

Recommendation 6

We recommend that the Plan update its FEDVIP policies and procedures for reviewing
debarred dental providers by ensuring that any provider listed on either DHHS or OPM’s
debarment lists are removed from the Plan’s provider network and flagged from receiving
payments in its claims system.

Plan Response 6

The Plan agrees with the OIG’s recommendation for item 6. The Plan has established a
process to ensure Sanctioned and Debarred providers will not be paid FEDVIP funds.

Attachment 5: Policy & Procedure for Review of Debarred Dental Providers is included
with this response.

Recommendation 7

We recommend that the Contracting Office issue additional guidelines to the FEDVIP
carriers with the same debarment requirements used in the FEHBP to help stop payments to
debarred providers and increase patient safety.

Plan Response 7

The Plan agrees with the OIG’s recommendation for item 7.

The Plan will upon receipt of the Contracting Office’s additional guidance disseminate
the new guidelines to the team and implement the new process.

                                   Deleted by OIG
                             Not Relevant to Final Report

Recommendation 8

We recommend that the Plan put in place policies and procedures to address the deficiencies
with the Average Call Hold Time and Call Abandonment Rate performance.



                                                                Report No. 1J-0J-00-17-016 

Plan Response 8

The Plan agrees with the OIG’s recommendation for item 8.

An action plan was implemented in March of 2017 to ensure all Federal Performance
standards are met going forward.


Attachment 6: Federal Customer Care Action Plan is included with this response.

Recommendation 9

We recommend that the Plan update its policies and procedures to properly measure all
performance standards that were guaranteed in the Contract.

Plan Response 9

The Plan agrees with the OIG’s recommendation for item 9.

A process to track and respond to e-mail and written inquiries was implemented in May
of 2017. The steps enacted will ensure e-mail and written inquiries are tracked and
acknowledged using the metrics illustrated in the 2014 RFP response. Both categories;
e-mail and written correspondence have been added (and are being tracked) to the
performance standards quarterly report card.

There are three (3) e-mail metrics:

   1)     of e-mails will be answered within one (1) day of receipt. 

   2)
     of e-mails will be answered within 2 days of receipt. 

   3) An average e-mail inquiries will be answered within 
            .

Similarly, there are three (3) metrics for written inquires (non-e-mail):

   1) Approximately          of written inquires will be answered within thirty (30) day
      of receipt.
   2)        of all written inquiries will be answered within sixty (60) days of receipt.
   3) On average Incoming written inquires will be answered within         days of
      receipt.

                                  Deleted by OIG 

                            Not Relevant to Final Report 


Recommendation 10

We recommend that the contracting officer require the Plan to modify its FEDVIP rate
proposal model to include more than six months of claims experience in projecting the
                                                                Report No. 1J-0J-00-17-016
following year’s rates, or it should reduce the completion factor when annualizing the claims
experience.

Plan Response 10

The Plan agrees with the recommendation and would welcome an annual rate proposal
process that considers a longer period of claims experience in projecting the following
year’s rates.

Recommendation 11

We recommend that the contracting officer and the Plan ensure that the premium rate
proposals comply with the projected    percent pre-tax profit listed in the Contract.

Plan Response 11

The Plan agrees the Contracting Officer and the Plan should work together to ensure
actual pre-tax profits are closely in line with the Plan’s projected pre-tax profits for the
contract period. Additional claims experience used in the rate proposal should be
helpful in achieving that objective.




                                                                 Report No. 1J-0J-00-17-016 

          Report Fraud, Waste, and
              Mismanagement
	
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                Government concerns everyone: Office of
                    the Inspector General staff, agency
                 employees, and the general public. We
               actively solicit allegations of any inefficient
                     and wasteful practices, fraud, and
                mismanagement related to OPM programs
               and operations. You can report allegations
                           to us in several ways:


By Internet:      http://www.opm.gov/our-inspector-general/hotline-to-
                  report-fraud-waste-or-abuse


 By Phone:        Toll Free Number:                    (877) 499-7295
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   By Mail:       Office of the Inspector General
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