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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Dental and Vision Insurance Program
 

RFP OPM-OI-RFP-0016, VBP Amendment
 

Long Term Care Partners, LLC/BENEFEDS
 

Portsmouth, New Hampshire
 

REPORT NO.IG-LT-OO-08-062 DATE: November 4, 2009 

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
 

Federal Employees Dental and Vision Insurance Program
 

RFP OPM-OI-RFP-0016, VBP Amendment
 

Long Term Care Partners, LLC/BENEFEDS
 

Portsmouth, New Hampshire
 

DATE:November 4, 2009 REPORT NO.IG-LT-OO-08-062 

The Office of the Inspector General has completed a performance audit ofthe 2005 through 

July 2008 BENEFEDS operations related to the Federal Employees Dental and Vision Insurance 

Program (FEDVIP), as administered by Long Term Care Partners, LLC (LTCP). BENEFEDS is 

the voluntary benefits portal developed by LTCP for FEDVIP, the Federal Flexible Spending 

Account Program, and the Federal Long Term Care Insurance Program. The primary objective 

ofthe audit was to determine if LTCP administered BENEFEDS in compliance with the contract 

(OPM-OI-RFP-0016, Voluntary Benefits Portal Amendment) and the FEDVIP regulations, 

5 CFR Part 894. The audit was conducted in Portsmouth, New Hampshire from August 11 

through August 29, 2008. 

The audit showed that LTCP administered BENEFEDS relating to FEDVIP in compliance with 

the contract and applicable regulations. 

www.uSlljobs.gov www.opm.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
 

SCHEDULE A - SUMMARY OF PROGRAM OPERATIONS
 
I. INTRODUCTION AND BACKGROUND
 

INTRODUCTION
 

This report details the results of our audit of the BENEFEDS program relating to the 

Federal Employees Dental and Vision Insurance Program (FEDVIP), which is 

administered by Long Term Care Partners, LLC (LTCP). The audit was performed by 

the Office of Personnel Management's (OPM) Office ofthe Inspector General (OIG), as 

established by the Inspector General Act of 1978, as amended. 

BACKGROUND 

LONG TERM CARE PARTNERS, LLC. 

LTCP was formed as a joint venture, owned 50 percent by John Hancock Life Insurance 

Company and 50 percent by Metropolitan Life Insurance Company, to provide and 

administer the benefits under the Federal Long Term Care Insurance Program (FLTCIP). 

In December 2001, a seven year contract (OPM-OI-RFP-0016) expiring April 30,2009 

was awarded to L'TCl' and operations began on March 25, 2002. (A new contract was 

awarded to John Hancock upon the expiration of the original contract.) 

On March 1, 2005, an amendment was made to the contract between aPM and LTCP to 

include the development, maintenance and administration of a voluntary benefits portal 

(VBP) to facilitate the provision ofthe FLTCIP, FEDVIP, and the Federal Flexible 

Spending Account (FSAFEDS) programs. The duties and responsibilities of LTCP 

included the following: 

a.	 Develop the VBP in accordance with the LTC Partners VBP Requirements 

Definition-Payroll, the LTC Partners VBP Requirements Definition-Portal, and 

the LTC Partners VBP Solution Proposal dated June 6,2005; 

b.	 Administer a web-based enrollment system; 

c.	 Notify applicable carriers of enrollments, including demographic and family 

member information; 

d.	 Process applicable payroll or annuity deductions with or from the applicable 

agency payroll office; 

e.	 Remit enrollee identifying information to applicable carriers or contractors and. 

for other than FSAFEDS, remit deductions to applicable carriers; 

f.	 Take action with payroll offices and enrollees to resolve instances in which 

requested deductions were not remitted; and 

g.	 Staff a teleservice center to answer enrollment and related questions and refer 

detailed benefit questions to the appropriate carrier or contractor. 

As a result of the development work performed for the FEDV1P, LTCP was entitled to a 

reimbursement of no more than $2 million. 
BENEFEDS 

BENEFEDS is the voluntary benefits portal developed by LTCP. BENEFEDS consists 

of the systems and business structures necessary to administer the enrollment and/or 

premium administration functions associated with multiple voluntary Federal benefits', 

including the FEDVIP, the FSAFEDS, and the FLTCIP. There are three major 

components to BENEFEDS: 

• An enrollment website (www.BENEFEDS.com) 

• A premium administrations system; and 

• A customer service system. 

FEDERAL EMPLOYEES DENTAL AND VISION INSURANCE PROGRAM 

The Federal EmployeesDental and Vision Benefits Enhancement Act 0[2004 resulted in 

the signing ofPublic Law 108-496, 118 Statute 4001, 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 or vision insurance services: 

Dental 

• Aetna Life Insurance Company 

• Government Employees Hospital Association, Inc. 

• MetLife Inc. 

• United Concordia Companies, Inc. 

• Group Health, Inc. 

• CompBenefits 

• Triple-S, Inc. 

Vision 

• BlueCross BlueShieJd Association 

• Spectera, Inc. 

• Vision Service Plan 

The first effective date of coverage was December 31, 2006. Eligible individuals must 

enroll through BENEFEDS to enroll in a dental and/or vision plan. 

This was our first audit ofBENEFEDS' program operations. 

2
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

OBJECTIVES
 

The objectives of our audit ofLTCPfBENEFEDS relating to FEDVIP was to determine 

compliance with the contract (OPM-01-RFP-0016, VBP Amendment) and the FEnVIP 

regulations, 5 CFR Part 894. 

Our specific audit objectives for this audit were as follows: 

Administrative Expenses 

•	 To determine if the start-up costs LTCP incurred for the development of 

BENEFEDS relating to FEDVIP were allowable and actual. 

•	 To determine whether administrative expenses charged to FEDVIP were 

allowable based on the contract and Federal Acquisition Regulations 31.201-2. 

•	 To obtain an understanding ofLTCP's cost accounting system and verify that 

expenses charged to FEDVIP were reasonable and correctly allocated. 

Premiums 

•	 To determine ifthe FEDVIP premiums were collected and paid to appropriate 

carriers and ifthe fees deducted from the premiums were calculated correctly. 

Cash Management 

•	 To determine ifFEDVIP funds were held in an interest bearing bank account 

separate from LTCP's 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. 

We reviewed BENEFEDS' premium amounts collected and disbursed for contract year 

2007 through July 2008 and program costs incurred for contract years 2005 through 

July 2008. During this period, BENEFEDS collected approximately $588 million in 

premiums and disbursed approximately $550 million to participating health carriers. 

LTCP and aPM received approximately $23 million and $11 million, respectively, to 

administer the FEDVIP program. Additionally, L'TCl' was reimbursed $2 million for the 

development ofthe FEDVIP portion of the BENEFEDS voluntary benefits portal, 

In planning and conducting our audit, we obtained an understanding of 

LTCPfBENEFEDS' internal control structure to help determine the nature, timing, and 

extent of our auditing procedures. This was determined to be the most effective approach 

3
 
to select areas for 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 LTCPIBENEFEDS' intemal 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 LTCPIBENEFEDS' 

system of internal controls taken as a whole. 

In conducting the audit, we relied to varying degrees on computer-generated data 

provided by LTCPIBENEFEDS. 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 doubt its reliability. We believe that the data was sufficient to achieve the audit . 

objectives. 

We also conducted tests to determine whether LTCP/BENEFEDS 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, LTCP/BENEFEDS complied with all provisions of 

the contract and the federal procurement regulations. 

METHODOLOGY 

To test LTCPIBENEFEDS compliance with the contract, we reviewed the following 

areas: 

Administrative Expenses 

•	 To determine ifLTCP/BENEFEDS was in compliance with the contract provisions 

.relative to program start-up costs, we reviewed: 

o	 The development cost cap determined by aPM in the contract between LTCP 

and aPM; 

o	 A summary of all the start-up costs relating to the development work for 

FEDVIP. We did a cursory review of all the start-up invoices for 

reasonableness. To determine if these invoices were actual, allowable, and 

reasonable, we judgmentally selected, based on highest dollar amount, one 

invoice totaling $437,500 out of a universe of seven invoices totaling $2 

million for review; and 

o	 The amount and the method that LTCP was reimbursed for their development 

costs regarding FEDVIP. 

•	 To determine if the administrative expenses were actual, necessary, and reasonable, 

we reviewed: 

o	 A list and a description of all FEDVlP cost centers to determine if they 

appeared to be allowable based on their function; 

4
 
o	 Descriptions of all natural accounts relating to the FEDVIP cost centers to 

determine if the expenses captured by these accounts appeared to be allowable 

costs; and 

o	 Management fees to determine ifthey were actual and correctly reported to 

aPM. 

•	 To obtain an understanding ofthe L TCP/BENEFEDS cost accounting system and 

verify that expenses charged to FEDVIP were reasonable and correctly allocated, we 

reviewed: 

a	 The cost accounting processes and procedures; and 

a	 A sample of the natural account invoices to determine that the expenses 

charged to FEDVIP were allocable and reasonable. We judgmentally selected 

our sample from the natural account transaction detail for the] 2 months 

ending September 30, 2007. We selected 5 out of23 natural accounts with the 

highest expense totals for fiscal year 2007 and then selected the 5 months with 

the highest costs (] month for each ofthe 5 natural accounts). The total 

amount ofthe sample was $371 ,850 out of a universe of $] ,995,208. 

•	 To determine ifthe FEDVIP premiums were collected and paid to appropriate carriers 

and if the fees deducted from the premiums were calculated correctly, we: 

a Reviewed agreements between aPM and L TCPIBENEFEDS to determine the 

components of the premiums; 

a	 Obtained an understanding of the processes and procedures for collecting 

premiums from payroll offices, deducting any administrative fees, and paying 

the FEDVIP carriers; 

o	 Reviewed LTCP reports and bank statements to determine the amount of 

FEDVIP premiums collected from the payroll offices. We judgmentally 

selected the period July 23, 2008 to July 31, 2008 because it was the last week 

of our audit scope, and another period around a similar time in the prior year 

(July 18, 2007 to July 26, 2007). For the sample period July 18,2007 to 

July 26, 2007, the sum of the premiums collected was $],339,769 out ofa 

universe total of $3] 1,982,427 in premiums collected in the year 2007. For 

the sample period July 23, 2008 to July 31, 2008, the sum ofthe premiums 

collected was $16,304,653 out of a universe total of$275,665,170 in 

premiums collected from January through July 2008. We also used these 

sample periods to review all LTCP fees, aPM fees, and the payments to the 

FEDVIP carriers; 

a	 Determined if administrative fees were properly deducted and transferred to 

the appropriate accounts; and 

a Reviewed bank statements to determine the FEDVIP carriers' portion ofthe 

premiums collected. 

5
 
Cash Management 

•	 Finally, to determine ifLTCPIBENEFEDS was in compliance with the contract 

provisions relative to cash management activities, we reviewed bank accounts and 

flowcharts relating to all FEDVIP funds. 

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. 

Additionally, we also reviewed the financial statements and workpapers completed by 

LTCP's Independent Public Accountants to identify any potential program concerns 

relating to BENEFEDS and FEDVIP. 

6
 
III. AUDIT RESULTS
 

Based on our review of administrative expenses, premium payments, and cash 

management activities, we found that the FEDVIP operations for 2005 through 

July 2008, as administered by LTCPIBENEFEDS, were administered in accordance with 

the contract and regulations. 

7
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Special Audits Group 

Auditor-In-Charge 

Auditor 

Senior Team Leader 

Group Chief 

8
 
SCHEDULE A 

Revenue 

Premiums collected 

Expenses 

Premium disbursements to health carriers 

aPM administrative expenses 

LTCP administrative expenses 

Total expenses 

Start-lip Costs 

Start-up costs to develop the BENEFEDS portal 

*Through July 31,2008 only. 

Long Term Care Partners, LLCIBENEFEDS 

Portsmouth, New Hampshire 

Summary of Program Operations 

Contract Years 2005 - July of 2008 

2005 2006 2007 2008* Total 

$0 $0 $311.982,427 $275,665,170 $587,647,597 

I 

$0 

0 

0 

$0 

$0 

0 

0 

$0 

$289,442,151 

5,932,945 

12.311.859 

$307,686,955 

$259,855,105 

5.237,330 

10,611,127 

$275,703,562 

$549,297.256 

11,170,275 

22,922.986 

$583,390,517 

$842.439 $1,157.561 $0 $0 $2,000,000