Every sentence of today's report from Inspector General Ed Quatrevaux on the City of New Orleans employee life insurance system is a potential news lede. It's tough to figure out where to start. So, I'll just go in the same order as the report.
Full report here: Evaluation_of_City_Employee_Life_Insurance_Benefits_120207.pdf
• The City overpaid for insurance by approximately $250,000 over a four-year period because the Risk Management Division failed to calculate the number of employees eligible for benefits accurately!
From 2007 to 2011, the City Attorney's office's division of risk management incorrectly calculated the number of employees — by as many as 2,000 per year — who were eligible for life insurance coverage, which drove up premiums by hundreds of thousands of dollars. The problem, according to the report, was that the office was counting retired employees, even though it only provides life insurance for active employees.
As the city notes in its response to the report, the Landrieu administration discovered the error in March 2011 and received an $80,000 credit from its insurance provider, Hartford Life and Accident Insurance Company.
• The City continued to overpay for group life/AD&D insurance after adjusting the calculation of eligible employees in March 2011!
According to the report, Hartford benefits go down by 50 percent for employees over 70, likewise premiums. But Risk Management continued to pay full-price on them between April and August 2011. Also, as of September 2011, the city was still covering 418 disabled retirees, even though, again, OIG says coverage is only for active employees. This cost the city an extra $2,100 per month.
The city's response here is worth putting down in full (with added emphasis):
"On the issue of including disabled retirees, and after further consultation with the insurance carrier, the city agrees that coverage under the policy does not extend to retirees, even if an employee was disabled in active status and subsequently retires. A [Chief Administrative Office] memo issued in 2003 that noted that disabled employees would have coverage under the life insurance policy, as well as the terms of the policy itself, may have been interpreted at the time the premium calculation process was developed to mean that life insurance policy did cover disabled retirees, a practice that continued until recently. It has now ended."
(Continued after the jump)
• The City paid more than $250,000 in commissions to two insurance agents!
According to employees interviewed by the IG, they didn't really do anything. The city responded saying that the agent compensation has been taken out of the insurance policy.
• The City passed up an opportunity to pay a lower rate for group life/AD&D benefits by failing to
follow through with a competitive procurement!
In January 2010, the City (under the Nagin Administration) issued a request for proposals for new insurance carriers. It received at least (see next) three bids, including from Hartford, its carrier, itself, at a 24 percent reduction. But the city stayed with its old rates for no reason the IG could determine.
The city notes in its response that (1) this was another administration and (2) the current administration negotiated a new contract with a ten percent premium cut, plus the elimination of the two high-paid agents.
• Personnel in the CAO’s Office destroyed records of the 2010 competitive procurement process, in violation of the Public Records Act!
OIG couldn't get all the information on the RFP because the Chief Administrative Office had destroyed the records in summer 2010. This is not in any way legal if done intentionally. The city, in its response, says it was done unintentionally.
• Law Department personnel bypassed safeguards that protect the integrity of the City’s purchasing system and budget!
When the OIG was looking for premium payment records, it found that a number weren't entered into the city's electronic purchasing system, which, according to OIG is against city policy. The city is going to review this finding against its policies.
• Information provided to City employees about their group life/AD&D benefits is inadequate!
OIG: "In the event that an employee dies or suffers a qualifying injury, it is up to the employee or the beneficiary to initiate the claims process by contacting the Risk Management Division. Employees and their beneficiaries are not, however, provided with information about the benefits available under the policy or the claims process. The lack of adequate information creates a risk that employees and their beneficiaries may not receive the benefits to which they are entitled."
The city says it will include this information in its 2012 employee handbooks.
• Death benefit claims were not filed for six of the twenty-one City employees who died between
January 1, 2009 and December 31, 2010!!
Possibly because of the previous finding, their beneficiaries didn't file on time. The report says they "may be able to file belated claims if they receive the information they need to do so. We do not know whether the delay in filing claims in these cases will have an impact on their eligibility for benefits."
The city says it "deeply regrets the oversight in not providing" the benefits. Life insurance programs are being transferred from Law to the CAO, and the process for obtaining benefits will be simplified and streamlined.