U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

AUDIT OF THE FEDERAL EMPLOYEES DENTAL
 

AND VISION INSURANCE PROGRAM
 

OPERATIONS AS ADMINISTERED BY
 

THE GOVERNMENT EMPLOYEES
 

HOSPITAL ASSOCIATION, INC.
 

LEE'S SUMMIT, MISSOURI
 

Report No. IB-31-00-10-006 

Date: September 27, 2010 

-CAUTION-­

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit 

report may contain proprietary data which is protected by Federal law (18 U.S.c. 1905). Therefore, while this audit report is available 

under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before 

releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy. 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 204]5
 

Office of the 

Inspector General 

AUDIT REPORT
 

Audit of the Federal Employees Dental and Vision Insurance Program
 

OPM-RFP-06-00060-6
 

Government Employees Hospital Association, Inc. As Administrator
 

Lee's Summit, Missouri
 

REPORT NO. IB-31-00-10-006 DATE: September 27, 2010

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.goY www.usajobs.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-RFP-06-00060-6
 

Government Employees Hospital Association, Inc. As Administrator
 

Lee's Summit, Missouri
 

REPORT NO. IB-31-00-10-006 DATE: September 27, 2010 

This report details the results of our audit of the Federal Employees Dental and Vision Insurance 

Program (FEDVIP) operations at the Government Employees Hospital Association, Inc. (GEHA) 

located in Lee's Summit, Missouri. GEHA provides dental insurance benefits under the 

FEDVIP program. The audit covered the testing of application controls over claim benefit 

payments, administrative expenses, premiums, cash management activities, Health Insurance 

Portability and Accountability Act compliance, fraud and abuse polices and procedures, and 

subcontracts for contract years 2007 and 2008. The results of our audit showed that the dental 

benefits were administered in accordance with contract OPM-RFP-06-00060-6 and the FEDVIP 

regulations (5 CFR Part 894). 

-~ - ~~~---

www.opm.gov www.usajobs.gov 
CONTENTS 

PAGE 

EXECUTIVE SUMMARY i
 

I. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGY 3
 

III. AUDIT RESULTS 7
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 8
 
I. INTRODUCTION AND BACKGROUND
 

INTRODUCTION
 

This report details the results of our audit ofthe Federal Employees Dental and Vision Insurance 

Program (FEDVIP) as administered by the Government Employees Hospital Association, Inc. 

(GEHA). 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 Employees 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 OPM to provide dental or 

vision insurance services for a term of seven 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 Salud, 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 ofthe contract; 

2.	 With respect to disputes regarding claims for payments or benefits under the terms ofthe 

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 OPM and the carrier; 

1
 
3.	 To make available to each individual eligible to enroll 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 OPM determines to be necessary to enable it to 

carry out its functions; and 

6.	 To permit OPM and representatives of the Government Accountability Office to examine 

such records of the carrier as may be necessary to carry out the purposes ofthe contract. 

GEHA 

GEHA administers dental benefits under the FEDVIP. Contract number OPM-RFP-06-00060-6 

between OPM and GEHA was awarded on August 29, 2006. Incorporated by reference into this 

contract are OPM-RFP-06-00060-6 and Amendments 001,002 and 003. 

GEHA provides dental insurance benefits to Federal employees, annuitants, and their eligible 

family members. The contract between OPM and GEHA 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 ofGEHA's program operations as it relates to the FEDVIP program. 

2
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

OBJECTIVES
 

The objectives of our audit of GEHA relating to the FEDVIP was to determine compliance with 

Contract OPM-RFP-06-00060-6, and the FEDVIP regulations (5 CFR Part 894). Our specific 

audit objectives for this audit were as follows: 

Benefit Payment Application Controls 

•	 To obtain an understanding of GEHA's claims processing system. 

•	 To determine whether the carrier has appropriate controls/edits in place to prevent the 

payment of unallowable 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 GEHA 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. 

Administrative Expenses 

•	 To determine if administrative expenses incurred for the FEDVIP program by GEHA 

and reported to OPM as part ofthe premium determination were actual, necessary, 

reasonable, and allocable to the program. 

Premiums 

•	 To determine whether the FEDVIP premium cost and its relative components are 

derived from amounts that are allowable, allocable and reasonable to the program. 

Cash Management Activities 

•	 To determine ifthe FEDVIP funds are held and invested in an interest-bearing bank 

account separate from GEHA's other lines of business; ifthese funds are held until 

they are used to pay claims; and ifthe amount claimed for investment income is 

accurate. 

•	 To determine ifGEHAlFEDVIP has adequate outstanding check procedures in place, 

and to determine if it currently has any checks that have been outstanding for more 

than two years. 

Health Insurance Portability and Accountability Act (HIPAA) 

•	 To determine ifGEHA is in compliance with HIPAA regulations. 

Fraud and Abuse 

•	 To determine how GEHA prevents instances of and protects its FEDVIP dental 

subscribers from fraud and abuse. 

•	 To determine ifthe fraud and abuse policies and procedures implemented and 

followed by GEHA were sufficient to meet the contract requirements. 

3
 
Subcontracts 

•	 To determine if GEHA adheres to the subcontracting provisions stipulated within the 

Contract. 

•	 To determine if there were any subcontracts where FEDVIP costs exceeded the 

Federal regulation threshold ($550,000) and did not receive OPM approval. 

•	 To determine if OPM's contracting office approved any significant changes to the 

original subcontract. 

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 the testing of application controls over claim benefit payments, administrative 

expenses, premiums, cash management activities, HIPPA compliance, fraud and abuse policies 

and procedures, and subcontracts for contract years 2007 and 2008. We performed our fieldwork 

from November 30 to December 18,2009, at GEHA's offices in Lee's Summit, Missouri. 

Additional audit work was completed in our offices in Washington, D.C. after the on-site visit. 

We reviewed the GEHAlFEDVIP premium reports for the years under review and found that 

GEHA collected premium payments of approximately $29.5 million and $51.5 million in 2007 

and 2008 respectively. Dental claim payments during the same period amounted to 

approximately $26.7 million and $44.5 million. 

In planning and conducting our audit, we obtained an understanding of GEHAlFEDVIP' 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 oftransactions and not tests of 

controls. Based on our testing, we did not identify any significant matters involving 

GEHAlFEDVIP'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 GEHAlFEDVIP's system of internal controls taken as a whole. 

In conducting our audit, we relied to varying degrees on computer-generated data provided by 

GEHAlFEDVIP. Due to time constraints, we did not verify the reliability ofthe data generated 

by the various information systems involved. However, while utilizing the computer-generated 

data during audit testing, nothing came to our attention to cause us to doubt its reliability. We 

believe that the data was sufficient to achieve the audit objectives. 

We also conducted tests to determine whether GEHAlFEDVIP 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, GEHAlFEDVIP complied with all provisions ofthe contract and the federal 

procurement regulations. 

4 
METHODOLOGY 

To achieve our objectives related to benefit payment application controls, we: 

•	 Interviewed personnel to obtain an understanding ofGEHA's claims processing system. 

•	 Documented and evaluated GEHA's policies and procedures currently in place to protect 

program emollees and program systems from fraud and abuse. 

•	 Developed 22 dental claim case scenarios based on information provided by GEHA and 

on the best practices of health insurance carriers. Results from the test cases were 

reviewed to determine whether GEHA 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 test and determine if administrative expenses incurred by GEHA for the FEDVIP program 

and reported to OPM as part ofthe premium determination were actual, necessary, reasonable, 

and allocable to the program we judgmentally selected: 

•	 Three direct expense accounts with total amounts paid in 2007 and 2008 (combined) over 

$50,000, with the greatest percentage increase from 2007 to 2008. Additionally, we 

selected one account based on nomenclature review. Within each ofthe four accounts, 

we selected the following transactions to test: 

1.	 Claim Payment Supplies Account: We selected the top three transactions by high 

dollar amount; 

2.	 Contract Services Account: We selected all transactions (four) related to "Open 

Season;" 

3.	 Advertising Account: We selected all transactions (20) from the month with the 

most activity/transactions; and 

4.	 Managed Care Account: We selected all transactions (nine) from the first three 

months of 2008. 

Our administrative expense samples represented $353,841 out of a universe of 

$5,422,452. 

To determine ifFEDVIP premiums were appropriately collected and paid we: 

•	 Reviewed the "Request for Proposal" agreements between OPM and GEHAlFEDVIP to 

determine the components ofthe premiums. 

•	 Judgmentally selected the premiums for May and June 2008 to verify the premiums 

received and recorded. The sample reviewed represented approximately $8.5 million of 

the $51.5 million in premiums received in 2008. 

To achieve our objectives related to cash management activities we: 

•	 Reviewed the GEHAlFEDVIP bank statements and procedures related to accounting for 

FEDVIP premiums to determine whether the FEDVIP funds were maintained separately 

from GEHA's other lines of business. 

•	 Judgmentally selected the last four months of2008 to review interest earned and to 

determine if funds were invested and held in an interest-bearing account until used to pay 

claims, and if the amount reported as investment income was accurate. The interest 

received in these months amounted to $20,048 from a total for 2008 of$43,618. 

5 
•	 Reviewed the GEHAlFEDVIP outstanding checks policies and procedures and 

outstanding checks reports to detennine ifthe policies were reasonable and ifthere were 

any checks outstanding for more than two years. 

To detennine ifGEHA is in compliance with the HIPAA regulations, we reviewed GEHA's 

responses to our HIPAA questionnaire and it's internal HIPAA policies and procedures. 

To achieve our fraud and abuse objectives, we interviewed GEHA personnel and reviewed 

GEHA's internal fraud policies and procedures and other infonnation to gain an understanding 

oftheir fraud and abuse program and to detennine compliance with the contract requirements. 

To achieve our objectives related to subcontracts, we: 

•	 Obtained a listing ofsubcontracts requested for approval from OPM and GEHA. 

•	 Detennined whether any subcontract's costs exceeding $550,000 received appropriate 

approval. 

•	 Reviewed the costs charged to the FEDVIP program, for all qualifying subcontracts, to 

detennine ifthey were allowable, allocable and reasonable. 

Because the samples we selected and reviewed in perfonning the audit were not statistically 

based, the results could not be projected to the universe since it is unlikely that the results are 

representative ofthe universe taken as a whole. 

We used the FEDVIP contract, the Federal Acquisition Regulations, and the laws and regulations 

governing GEHAJFEDVIP to detennine whether GEHA's application controls over claim 

benefit payments, administrative expenses, premiums, cash management activities, HIPPA 

compliance, fraud and abuse policies and procedures, and subcontracts were in compliance with 

the tenns ofthe contract and the applicable regulations. 

The initial results of our audit were discussed with GEHA during an exit conference at the end of 

our on-site work. We did not issue a draft report for review and comment because GEHA 

properly administered the program in accordance with Contract OPM-RFP-06-00060-6 and the 

FEDVIP regulations (5 CFR Part 894). 

6
 
III. AUDIT RESULTS
 

Based on our review of application controls over claim benefit payments, administrative 

expenses, premiums, cash management activities, HIPAA compliance, fraud and abuse policies 

and procedures, and subcontracts, we found that GEHA properly administered the program in 

accordance with Contract OPM-RFP-06-00060-6 and the FEDVIP regulations (5 CFR Part 894). 

7
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Special Audits Group 

Auditor 

Auditor 

Auditor-In-Charge 

_11II Chief 

enior Team Leader 

8