oversight

Audit of Delta Dental's Federal Employees Dental Program's Premium Rate Proposal for 2018

Published by the Office of Personnel Management, Office of Inspector General on 2017-08-15.

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-0K-00-17-037


                                                                 August 15, 2017


            MEMORANDUM FOR
                                                 Chief, Individual Benefits and Life

            FROM:
                                                 Chief, Special Audits Group

            SUBJECT:                             Audit of Delta Dental’s Federal Employees Dental Program’s
                                                 Premium Rate Proposal 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 Delta Dental’s Federal
            Employees Dental Program’s (Plan) premium rate proposal for 2018, to determine
            whether costs proposed were in accordance with the terms of Contract Number OPM01-
            FEDVIP-01AP-3 (Contract) and Federal regulations. The audit included a review of the
            Plan’s 2016 certified annual accounting statement and 2018 proposed premium rates for
            the Federal Employees Dental and Vision Insurance Program (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 final
            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
                    Privacy Act, 5 U.S.C. § 552a.
                                                                                                                            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 offices
located in Rancho Cordova, California and San Francisco, California. 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.

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 finding and conclusion
based on the audit objective. We believe that the evidence obtained provides a
reasonable basis for our finding and conclusion based on the audit objective.

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 San Francisco, California from June 5
through June 8, 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 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



                     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.
                                                                                                                              3


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 Plan’s FEDVIP loss ratio based on the supporting
         documentation provided by the Plan to determine if its profit or loss was
         accurately disclosed to OPM in the 2016 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 premiums, enrollment, and claims expenses reported to OPM. We also
         reviewed the benefit changes, trends, completion factors, and other actuarial
         assumptions to ensure that they were reasonable and equitable.

RESULTS OF THE AUDIT




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       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.
                                                                                                                            4




                    ---------------------------------------------------------------
The results of the audit were discussed with Plan officials at an exit conference on
July 19, 2017.




                     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.
                                                                                                                            5


The Plan has been notified that this memorandum will be issued directly to OPM’s
Program 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

    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




                     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.
                                                                                                                       6



Chief, Audit Resolution


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
Privacy Act, 5 U.S.C. § 552a.