oversight

Audit of Federal Employees Dental & Vision Insurance Program Operations as Administered by Metropolitan Life Insurance Company in Bridgewater, New Jersey

Published by the Office of Personnel Management, Office of Inspector General on 2010-01-12.

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

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




Final Audit Report
Subject:




AUDIT OF TIlE FEDERAL EMPLOYEES DENTAL
    AND VISION INSURANCE PROGRAM
    OPERA TIONS AS ADMINISTEREI) BY
                                                                                                         .   ~




METROPOLITAN LIFE INSURANCE COMPANY

       BRIDGEWATER, NE'V JERSEY



                                            Report No. 2A-II-OO-09-019


                                            Date:         January 12 r              2010




                                                            -CAUTION-­
This audit report has be ell distributed 10 Federal oHici~ls who arc responsible for lhe administration of thr audited progmm, This audil
report may contain propriellll"y data which is protected b}' Federal law (IS U.S.c. 1905), Therefere, while Ibis audit report is available
under the Freedom of Information Act aild made ayailablc 10 the public on tbe OIG weblJagc, cau lioll needs to be exercised before
~deasing the report to Ihe general public as it may contain proprietary information lhal was redacted from the publid}' distrthured copy.
                                   · ;




                            UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                               Washington, DC 20415

  Office of the
Inspector General




                                             AUDIT REPORT





                      Audit of the Federal Employees Dental and Vision Insurance Program

                                               OPM-06-00060-6


                            Metropolitan Life Insurance Company As Administrator

                                           Bridgewater, New Jersey





                    REPORT NO. 2A-II-OO-09-019                        DATE: January 12, 2010




                                                                      ;Zt2c~-
                                                                      Michael R. Esser
                                                                      Assistant Inspector General
                                                                        for Audits



        www.opm.gov                                                                         www.usa)obs.goY
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                                 Washington, DC 20415



  Office of the
Inspector General



                                        EXECUTIVE SUMMARY





                     Audit of the Federal Employees Dental and Vision Insurance Program

                                              OPM-06-00060-6


                           Metropolitan Life Insurance Company As Administrator

                                          Bridgewater, New Jersey





       REPORT NO. 2A-II-OO-09-019                                 DATE: January 12, 2010

      This report details the results of our audit of the Federal Employees Dental and Vision Insurance
      Program (FEDVIP) operations at Metropolitan Life Insurance Company (Metl.ife) in
      Bridgewater, New Jersey. MetLife provides dental insurance benefits under the FEDVIP
      program. The audit covered the testing of application controls over claim benefit payments,
      premiums, and cash management activities for contract years 2007 and 2008. We identified one
      procedural finding related to Metlife's Explanation of Benefits (EOB) statement. Except for this
      finding, we determined that the dental benefits were administered in accordance with Contract
      OPM-06-00060-6 and the FEDVIP regulations, 5 CFR Part 894. Our audit issue is summarized
      below.

                                        CLAIM BENEFIT PAYMENTS

       •     Lack of Clarity in the Explanation of Benefits Statement                        Procedural

             MetLife's EOB statements are not as detail-oriented/user-friendly as they could be.
             Consequently, members may have difficulty determining amounts allowed and paid by the
             health carriers for services provided, as well as their payment responsibility for covered
             services.

                                                  PREMIUMS

       The premium costs charged by MetLife were in compliance with the terms of Contract
       OPM-06-00060-6, as well as the applicable Federal regulations.



           www.opm.gov                                                                         www.usajobs.gov
                         CASH MANAGEMENT ACTIVITIES

MetLife's handling ofFEDVIP funds was in accordance with the terms of Contract
OPM-06-00060-6, as well as the applicable Federal regulations.
                                        CONTENTS

                                                                                          PAGE

        EXECUTIVE SUMMARY                                                                     i


  L     INTRODUCTION AND BACKGROUND                                                          1


 II.	   OBJECTIVES, SCOPE, AND METHODOLOGY                                                   3


III.	   AUDIT FINDING AND RECOMMENDATIONS                                                    6


        A.   CLAIM BENEFIT PAYMENTS	                                                         6


             1.   Lack of Clarity in the Explanation of Benefits Statement..	                6


        B.   PREMIUMS                                                                        7


        C    CASH MANAGEMENT ACTIVITIES                                                      7


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT                                                    8


        SCHEDULE A - Summary of Program Operations


        APPENDIX:       (MetLife's response, dated September 23,2009, to the draft audit report)

                     I. INTRODUCTION AND BACKGROUND


INTRODUCTION


This report details the results 'of our audit of the Federal Employees Dental and Vision Insurance
Program (FEDVIP) as administered by Metropolitan Life Insurance Company (MetLife). 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

FEDERAL EMPLOYEES DENTAL AND VISION PROGRAM

The Federal Employee Dental and Vision Benefits Enhancement Act of2004, Public Law 108­
496, 118 Statute 4001, was signed into law 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
and vision insurance services for a term of 7 years:

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

               Vision
               •	 BlueCross BlueShield Association;
               •	 United HealthCare (formerly Spectera, Inc.); and
               •	 Vision Service Plan

The duties and responsibilities of insurance carriers participating in the FEDVIP program include
the following:

   1.	 To provide payments or benefits to an eligible individual if such individual is entitled
       thereto under the terms of the contract;
   2.	 With respect to disputes regarding claims for payments or benefits under the terms of the
       contract-
           a.	 to establish internal procedures designed to expeditiously resolve such disputes;
           b.	 to establish, for disputes not resolved through procedures mentioned above,
               procedures for one or more alternative means of dispute resolution involving
               independent third-party review under appropriate circumstances by entities
               mutually acceptable to aPM and the carrier;
   3.	 To make available to each individual eligible to em-all in a dental benefits plan,

       information on services and benefits to enable the individual to make an informed

       decision about electing coverage;

   4.	 To maintain accounting records that contain such information and reports as OPM may
       require;
   5.	 To furnish such reasonable reports as aPM determines to be" necessary to enable it to
       carry out its functions; and
   6.	 To permit OPM and representatives of the Govenunent Accountability Office to examine
       such records of the carrier as may be necessary to carry out the purposes of the contract.

METLIFE

Metl.ife administers dental benefits under the FEDVIP. The contract number OPM-06-00060-6
between aPM and Metlife was awarded on August 29, 2006. Incorporated by reference into this
contract are Solicitation OPM-RFP-06-00060 and Amendments 001, 002 and 003.

MetLife provides dental insurance benefits to Federal employees, annuitants, and their eligible
family members. The contract between OPM and MetLife is for a seven year period, starting
December 31,2006 and ending December 31, 2013, with the option to renew the contract.

This was our first audit of MetLife's program operations as it relates to the FEDVIP.




                                                2

                                                                      .   ,,




               II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES

The objectives of our audit of MetLife relating to the FEDVIP was to determine compliance with
Contract OPM-06-00060-6 and the FEDVIP regulations, 5 CFR Part 894.

Our specific audit objectives for this audit were as follows:

        Benefit Payments/Application Controls
        •	 To obtain an understanding ofthe carrier's claims processing system.
        •	 To determine whether the carrier has appropriate controls/edits in place to prevent the
           payment of unaUowable claims.
        •	 To determine whether the carrier has a program in place to protect enrollees and the
           carrier's claims system from instances of fraud and abuse.
        •	 To determine whether MetLife has proper application controls in place over its claim
           processing and check-writing systems to help ensure that FEDVIP-related
           transactions are valid, properly authorized, and completely and accurately processed.

        Premiums
        •	 To determine whether the FEDVIP premium costs and its relative components are
           derived from amounts that are allowable, allocable, and reasonable to the program.

        Cash Management
        •	 To determine whether the FEDVIP funds were properly received and accurately
           transferred into MetLife accounts in a timely manner.
        •	 To determine if the FEDVIP funds are held ill an interest bearing bank account
           separate from Metl.ifes 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.

The audit covered application controls for benefit payments, premium costs, and cash
management. activities for contract years 2007 and 2008. We performed our fieldwork from
March 2 to March 13,2009, in Bridgewater, New Jersey, and from March 16 to March 20, 2009,
in Oriskany, New York, where MetLife's claims system is located. Additional audit work was
completed in our offices in Washington, D.C. after the on-site visits.

We reviewed the MetLife/FEDVIP financial experience report for policy years 2007 and 2008.
During this period, benefit charges totaled $332,] 08,278 and premiums earned totaled
$361,234,705.
In planning and conducting our audit, we obtained an understanding of MetLife/FEDVIP's
internal control structure to help determine the nature, timing, and extent or our auditing
procedures. This was determined to be the most effective approach 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
MetLifeIFEDVIP's internal 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 MetLife/FEDVIP's system of internal controls taken as a whole.

In conducting the audit we relied to varying degrees on computer-generated data provided by
MetLife/FEDVIP. 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 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 MetLife/FEDVIP 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, MetLife/FEDVIP complied with all provisions of the contract and the federal
procurement regulations, except for one procedural finding related to Metlife's Explanation of
Benefits (EOB) statement.

METHODOLOGY

To achieve our objectives related to benefit payments/application controls we:

    •	 Interviewed personnel to obtain an understanding of MetLife's claims processing system.
    •	 Documented and evaluated Metl.ife's policies and procedures currently in place to
       protect program enrollees and program systems from fraud and abuse.
    •	 Developed 24 dental claims case scenarios based on information provided by MetLife
       and on the best practices of health insurance carriers, Results from the test cases were
       reviewed to determine whether Metl.ife has proper application controls in place over its
       claim processing and check-writing systems to ensure that FEDVIP-related transactions
       were valid, properly authorized, and accurately processed.

To achieve our objective related to premium costs we:

    •	 Reviewed the "Request for Proposal" agreements between aPM and MetLife/FEDVlP to
         determine the components of the premiums.
    •	 Reviewed the 2009 premium calculations to determine whether the premium costs and
       . relative components were derived from amounts that are allowable, allocable, and
         reasonable.




                                                  4

To achieve our objectives related to cash management we:

    •	 Selected the three months from each calendar year with the highest FEDVIP premiums
       received for review. The. premiums received in these months amounted to $113,731,767
       from a universe of$361,234,705. In addition, we reviewed the associated bank
       statements to determine if the premiums were received and accurately transferred into
       MetLife accounts.
    •	 Reviewed MetLife procedures related to accounting for FEDVIP premiums to determine
       whether the FEDVIP funds were maintained separately from MetLife's other lines of
       business.

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.

We used the FEDVIP contract, the Federal Acquisition Regulations, and the laws and regulations
governing MetLife/FEDVIP to determine whether MetLife's administration of the application
controls for benefit payments, the premium costs, and the cash management activities were in
compliance with the terms of the contract and the applicable regulations.

The results of the audit were discussed with MetLife officials throughout the audit and at the exit
conference. In addition, a draft report, dated August 21, 2009, was provided to MetLife for
review and comment. Metl.ife comments to the draft report were considered in preparing the
final report and are included as an Appendix to this report.




                                                   5

            III. AUDIT FINDING AND RECOMMENDATIONS


A. CLAIM BENEFIT PAYMENTS


  1. Lack of Clarity in the Explanation of Benefits Statement                       Procedural

     MetLife's Explanation of Benefits (EOB) statements are not as detail-oriented/user­
     friendly as they could be. Consequently, members may have difficulty determining
     amounts allowed and paid by the health carriers for services provided, as well as their
     payment responsibility for covered services.

     We tested the benefit payment's application controls for 24 claim cases and found that
     the standard EOB wording of benefits paid towards a member's annual maximum benefit
     amount is confusing. Specifically, the statement combines the benefit amount received
     from MetLife and the benefit amount received from other insurance the member may
     possess. Ideally, to assist a member in determining the amount applied toward his or her
     annual maximum benefit, the EOB should only show the amount of benefits paid by
     MetLife towards the annual maximum benefit related to the benefit option purchased by
     the member.

     We informed MetLife of our concern. In addition, we provided MetLife an example of a
     best-practice statement design that it could consider in revising its current EOB
     statement.

     MetLife Comments:

     MetLife agrees with this finding and stated that it would work to revise and improve
     annual maximum wording on the EOB and consider are-design of the EOB statement to
     improve member understanding of covered expenses, coordination of benefits if
     applicable, and out-of pocket responsibility.

     Recommendation 1

     We recommend that the contracting office and MetLife review the Eon statement and
     revise the language, where necessary, so that members can easily understand the amounts
     paid towards the annual maximum benefit amount allowed by Metl.ifes dental
     program.

     Recommendation 2

     We recommend that the contracting office and MetLife consider are-design of the EOB
     statement that is sent to members specifying the covered expense amount determined by
     MetLife, the covered expense amount determined by other insurance the member may
     possess, and the amount the member is responsible to pay.




                                                6
B. PREMIUMS

  Our review of the premium costs charged by MetLife determined they were in compliance
  with the terms of Contract OPM-06-00060-6, as "veil as the applicable Federal regulations.

C. CASH MANAGEMENT ACTIVITIES

  Our review of Metl.ife's handling ofFEDVIP funds determined it was in accordance with
  the terms of Contract OPM-06-00060-6, as well as the applicable Federal regulations.




                                                7

IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

                 Auditor-In-Charge

            Auditor

                Auditor - Information Systems Audits Group



                  Senior Team Leader

                  Group Chief




                                             8

                                                                         SCHEDULE A

           Federal Employees Dental and Vision Insurance Program (FED VIP)

                              Bridgewater, New Jersey


                           Summary of Program Operations

                              Contract Years 2007-2008



                                    2007                2008                   Total

Revenue

  Premiums Received (Cash)
        $133,017,522         $228,217,] 83
              Total Revenue        $133,017,522         $228,217,183          $361,234,705

Expenses

  Claim Benefits Paid
             $132,567,417         $199,540,861
               Total Expenses      $132,567,417         $199,540,861          $332,108,278
    .­
                                                                                        Appendix


National Accounts
501 US Highway 22, PO Box 6891
                                                                   MetLife®
Bridgewater, NJ OB807




September 23,2009                                                  Account Executive
                                                                   Registered Representative

                                                                   (908) 253·2222
                                                                   (866) 205-5786 FAX
Group Chief, Special Audits Group
                                                                   tmcdurg@metlife.com
U.S. Office of Personnel Management
Office of the Inspector General
1900 E Street, Room 6400
Washington, DC 20415-1100

Re:	     FEDVIP Draft Audit Report
         Report # 2A-II-OO-09-019


Dear

~ letter is to respond to the FEDVIP audit finding in _
_ draft report, # 2A-II-00-09-019, dated August 21,2009 on
contract OPM-06-0060-6.

Lack of Clarity in the Explanation of Benefits Statement ("EOB")

We are in agreement with the two recommendations made in the audit findings
document. Met Life will work to: (1) revise and improve annual maximum wording
on the EOB so that members can more easily understand their benefit usage;
and. (2) consider a re-design of the EGB statement to improve member
understanding of covered expenses, coordination of benefits, if applicable, and
out-of-pocket responsibility.

 Please "advise if you have any questions.