Report: New Orleans Wasted Money on Life Benefits for Years

The city misspent around $500,000 on employee benefits during a span of eight years, according to a report released by the New Orleans Inspector General.

The inspector general’s office evaluated the city’s policies and practices relating to procuring and managing the group life insurance benefits provided to its employees. The risk management division within the city’s law department had responsibility for policy procurement and administration during the time evaluated.

According to the evaluation, New Orleans wasted around $250,000 by providing benefits to retirees who were ineligible. Another $250,000 in commissions was paid to two insurance agents who provided no service to the city. The agents were not named in the report.

The policy has been provided through Hartford Life and Accident Insurance Co. (Hartford) since 2003.

Additionally, the investigation found that employees were provided with inadequate benefits information and that death benefit claims were not filed for six employees who died in 2009-2010.

The report also found that records of proposals received from benefits providers in response to a request for proposals in 2010 had been unintentionally destroyed by city personnel.

Among the recommendations proposed by the report: Refine eligibility lists used for premium calculations; solicit proposals for competitive rates for life insurance coverage; and shift responsibility of the life insurance policy to the employee benefits division in city’s chief administrator’s office.

“The overarching problem identified during this evaluation was the poor management of this employee benefit,” Inspector General Ed Quatrevaux stated in a departmental release. He added that new competition for the provision of the coverage would help lower the city’s costs.

New Orleans Mayor Mitch Landrieu’s administration said it has taken steps to fix the situation, the Associated Press reported.

In a written response to the report, Andrew Koppelin, first deputy mayor and chief administrative officer, said the city has already addressed many of the problems revealed in the report. Responsibility for oversight of life insurance benefits was moved from the city’s law department to the chief administrator’s office as of Jan. 1, 2012.

The city has renegotiated the terms of the policy for 2011-2012 with The Hartford to eliminate the 10 percent commission received by the agents, Koppelin said. The life insurance benefit for city employees was raised from $15,000 to $20,000.

Koppelin noted that over a four-year period the city overpaid $330,000 for the policies because of the inaccurate calculation of the number of employees eligible for the life insurance benefit. The overpayment was discovered in March 2011 and the insurance carrier has reimbursed $80,000 of the overpayment, which covered the 2011-2012 policy year.

Kopplin said the city is “actively communicating” with the beneficiaries of the six individuals who died between Jan. 1, 2009, and Dec. 31, 2010, and for whom the benefits were not provided, in order to ensure that they receive the eligible benefits.

Most of the problems found in the report occurred before Mayor Mitch Landrieu took office in May 2010, the Associated Press reported.