Chapman Kelly has just launched an updated and expanded dependent eligibility audit website. The new website contains The Dependent Audit Guide, the most comprehensive set of information on Dependent Eligibility Audits in existence. This guide is free to access and is meant to serve as an educational resource for anyone interested in learning more about a Dependent Eligibility Audit.
The Dependent Audit Guide includes information on some of the following topics:
- Types of Dependent Audits
- Document Considerations
- Audit Objectives
- Communication Considerations
- Specific Scenarios and Best Practices
- Sample Dependent Eligibility Audit RFPs
- As well as many other topics
Visit www.dependentcheck.com to see all of the available information.
Please contact us if you have any questions or suggestions.
The Centers for Medicaid and Medicare Services (CMS) instituted the VDSA program to provide better communication between itself, employers and insurers. This exchange of information ensures all parties, including Medicare, have all necessary information to determine which insurance company should be paying medical claims first.
Employers who sign a VDSA with CMS will provide a quarterly data exchange with CMS detailing the necessary information to determine primacy. Participation in the VDSA program will also satisfy the need for employers to complete the Data Match Questionnaire, which is currently required by CMS.
Once enrolled in the VDSA program, employers will have access to critical information through BASIS- CMS’ Beneficiary Automated Status and Inquiry System. BASIS provides ongoing electronic access to a wealth of information including Medicare entitlement. This system shows the parts of Medicare the member has enrolled in as well as effective dates of coverage and termination dates (if applicable).
Participation in the VDSA program can help employers to both avoid paying claims in the improper order and paying penalties when claims are not coordinated properly.
When considering a claim audit there are several approaches that can be taken. The most traditional type of audit is retrospective in nature and includes the most recent 18-24 months of claims. Retrospective audits can be performed differently depending on the employers audit objective. Understanding your objectives and clearly defining those objectives will aid in the success of your claim audit.
A Random Sample Audit accomplishes objectives related to compliance and due diligence. In general, the random audit reviews a sample of claims selected on a stratified basis from 7 strata defined by total dollars paid to ensure that both large and small dollar claims are represented. This provides a stratified random sample, with emphasis on actual dollars paid rather than claim count. The results are statistically valid and can be extrapolated across the entire population of claims. However, carriers typically will not refund monies based on extrapolated results from a random audit. The random audit has the ability to identify systemic processing errors and offer recommendations for improvement.
A Focused Sample Audit accomplishes objectives related to overpayment recovery as well as compliance and due diligence. Typically focused audits use a multi-tier review process. Claims are reviewed electronically as well as manually while preparing the focused sample. During a focused audit the sample claims will be compiled to maximize the recovery potential. The judgment on payment accuracy must be made on the actual samples selected and you will not be able to extrapolate the results across your population. The focused audit has the ability to identify recoverable dollars in addition to systemic processing errors and offer recommendations for improvement.
A Hybrid Audit approach is a combination of a random audit and focused audit. A hybrid audit achieves both of the objectives from the random and focused audit- compliance, due diligence and overpayment recovery. A portion of the sample claims are chosen in a random fashion while utilizing the balance of the sample to select focused claims with a high probability of being overpaid. This approach provides both a statistical view of payment accuracy, and the ability to seek recovery of overpayments.
Our previous white paper on dependent eligibility under health care reform highlighted the importance of maintaining your plan’s grandfathered status in order to reduce the cost-impact of the Patient Protection and Affordable Care Act (PPACA). Chapman Kelly has access to a copy of the proposed rules regarding how plans can maintain their grandfathered status. You can download the document here.
Upon initial review of the document here are a few items that should be noted by employers.
The following changes will cause a health plan to lose its grandfathered status:
- Elimination of Benefits - The elimination of all or substantially all benefits to diagnose or treat a particular condition causes a group health plan or health insurance coverage to cease to be a grandfathered health plan. For this purpose, the elimination of benefits for any necessary element to diagnose or treat a condition is considered the elimination of all or substantially all benefits to diagnose or treat a particular condition.
- Increase in percentage cost-sharing requirement – Any increase, measured from March 23, 2010, in a percentage cost-sharing requirement (such as an individual’s coinsurance requirement) causes a group health plan or health insurance coverage to cease to be a grandfathered health plan.
- Increase in a fixed-amount cost-sharing requirement other than a copayment – Any increase in a fixed-amount cost-sharing requirement other than a copayment (e.g., deductible or out-of-pocket limit), determined as of the effective date of the increase, causes a group health plan or health insurance coverage to cease to be a grandfathered health plan, if the total percentage increase in the cost-sharing requirement measured from March 23, 2010 exceeds the maximum percentage increase (as defined in paragraph (g)(3)(ii) of this section).
- Increase in a fixed-amount copayment - Any increase in a fixed-amount copayment, determined as of the effective date of the increase, causes a group health plan or health insurance coverage to cease to be a grandfathered health plan, if the total increase in the copayment measured from March 23, 2010 exceeds the greater of:
- An amount equal to $5 increased by medical inflation, as defined in paragraph (g)(3)(i) of this section (that is, $5 times medical inflation, plus $5), or
- The maximum percentage increase (as defined in paragraph (g)(3)(ii) of this section), determined by expressing the total increase in the copayment as a percentage.
- Decrease in contribution rate by employers and employee organizations – A group health plan or group health insurance coverage ceases to be a grandfathered health plan if the employer or employee organization decreases its contribution rate (as defined in paragraph (g)(3)(iii) of this section) towards the cost of any tier of coverage for any class of similarly situated individuals (as described in §54.9802-1(d)) by more than five percentage points below the contribution rate for the coverage period that includes March 23, 2010.
If an employer intends to maintain its grandfathered status it must perform two administrative duties:
- Document the plan or policy terms on that were in place on March 23, 2010 (The data PPACA was signed into law). Having this documentation available is very important if it is required by outside parties to validate that the plan has not made any changes that would cause it to lose its grandfathered status.
- Disclose within its plan materials that the plan is a grandfathered health plan. The proposed rule included a sample of what this statement should include:
- This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). Being a grandfathered health plan means that your [plan or policy] does not include certain consumer protections of the Affordable Care Act. Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]
We will be distributing more information regarding this proposed rule and what strategies employer’s can use to reduce the cost-impact of the PPACA rules.
As an employer you may believe that not requiring your Medicare eligible population to enroll in Medicare is somehow a benefit to your employee. You may believe that you are not allowed to force your Medicare eligible members to enroll. However, both of these statements are false.
How does mandatory Medicare enrollment work? As an employer you can require Medicare eligible members covered by your group health plan to enroll in Medicare. Keep in mind this does not mean removing these members from your group health plan but rather requiring members to enroll with Medicare to receive benefits in addition to the benefits they receive under the group health plan. Employers do not decide who is Medicare eligible and who is not. The eligibility guidelines are set by CMS. Medicare eligible individuals include anyone who is entitled due to age or disability. Typically your Medicare eligible members are high utilizers of the group health plan, specifically members whose Medicare entitlement is due to disability such as employees on Long Term Disability and under 65 retirees. Requiring these members to enroll in Medicare provides a cost savings benefit to you as the sponsor of the group health plan. If a member is enrolled in Medicare and they become inactively employed by Medicare’s definition Medicare becomes the primary payer and the employer sponsored group health plan becomes secondary. Medicare’s definition of inactive and your internal definition can and usually does differ. Enrollment in Medicare is also a benefit to your member. Their out of pocket expenses are greatly reduced since they have a primary and secondary plan to pay their claims. This practice can lower costs for you as an employer as well as your member.
The Coordination of Benefits section of the Summary Plan Description should be updated to include wording that indicates members are required to enroll in Medicare once they become eligible and to notify their employer of their eligibility. In addition, the most effective mandatory Medicare provisions will state that claims will be paid as secondary as if the member was enrolled in Medicare even if the member fails to enroll. By adding this additional wording the employer is not penalized if a member does not complete the enrollment requirement as stated in your Summary Plan Description. Your intent to require Medicare enrollment should also be communicated to your Plan Administrator to ensure claims are processed correctly.
Controlling health care spending is at the forefront of everyone’s mind. Mandating Medicare enrollment is just one step you can take in controlling your costs.
Now that HHS has provided a first round of guidance for the implementation of the dependent coverage provisions of Health Care Reform, new questions emerge.
Question #1: Do the changes negatively impact the expected results of a dependent audit?
The short answer is “yes,” but it is important to consider the size of the impact and the net results after the changes. An average dependent costs a group health plan $2,800 per year. Conservatively, most employers can expect to drop 5% of total dependents. So, for a group with 1,000 dependents, they could expect to drop 50 dependents for an average savings in the first year of $140,000. If the group health plan had a traditional definition requiring an adult child up to age 23-25 to be full time students, up to 40% of the total drops could be students. This reduces the number of dependents that, on average, would be removed to 30. However, while students represent 40% of the drops from a population perspective, they are roughly half as expensive as an average dependent. So while you would lose 40% of the drop count, you would only lose 20% of the savings. The group with 1,000 dependents would thus save $112,000 instead of $140,000. If the dependent audit cost $30,000, this would still produce and ROI of 273%. Not a bad return when cash in your local bank’s savings account earns 1/4%
Question #2: Should I wait until 2011 to implement my dependent audit?
Here, the short answer is “probably not.” The savings from a dependent audit is actually reoccurring year after year – though it diminished over time due to attrition and natural circumstances. Waiting until 2011 will have a real cost in terms of delayed savings that can never be recouped. Using the same 1,000 dependent group health plan above, the annualized monthly savings is $9,333. Thus, every month a dependent audit is delayed eliminates up to $20,000 in savings that could be achieved with earlier implementation. If you were contemplating a 6 month day, this could be $56,000 in lost savings. A good analogy would be if you could save $50/month by installing a new high efficiency air conditioner in your home. Every month you delay your decision to install the new AC, you continue to pay the extra $50. And you can never get the $50 back.
Question #3: If I implement a dependent audit right now, how should I account for Health Care Reform?
For this, there are two options. First, you could follow suit of many major national insurance companies and implement the changes that you are required to implement in 2011 (assuming a Jan 1 plan start date) sooner vs. waiting. If you take this option, then you should consider implementing a program to ensure that the adult children on your plan do not have coverage available to them from their own employer. No other changes to a typical dependent audit would be necessary. Second, you could implement the audit based on your rules as of today – with no changes based on Health Care reform. If you are an ERISA self-insured plan, you still have an obligation to manage your plan as designed and for the exclusive benefit of the plan participants. This is a strong argument for continuing to operate your plan as it is designed today. There is also a concept called status quo bias that you should consider. By ensuring that you keep your plan tightly managed today, you will help ensure that you continue to only offer coverage to dependents that are truly eligible under the new rules.
The Department of Health and Human Services (HHS) issued interim final rules regarding how dependent eligibility can be defined under health care reform. The rules (excerpted and linked below) reinforce how critical it is to maintain the grandfathered status of a group health plan. See our white paper for a complete overview of the strategies that can be used to reduce the financial impact of health care reform on dependent eligibility. Employers should begin planning right away to implement an affidavit process to determine if adult dependents have access to health coverage as a result of their own employment. Contact us to find out more about how this process would work.
Excerpts from the Regulations:
Regarding the Definition of a Dependent
“(b) Restrictions on plan definition of dependent. With respect to a child who has not attained age 26, a plan or issuer may not define dependent for purposes of eligibility for dependent coverage of children other than in terms of a relationship between a child and the participant (in the individual market, the primary subscriber). Thus, for example, a plan or issuer may not deny or restrict coverage for a child who has not attained age 26 based on the presence or absence of the child’s financial dependency (upon the participant or primary subscriber, or any other person), residency with the participant (in the individual market, the primary subscriber) or with any other person, student status, employment, or any combination of those factors. In addition, a plan or issuer may not deny or restrict coverage of a child based on eligibility for other coverage, except that paragraph (g) of this section provides a special rule for plan years beginning before January 1, 2014 for grandfathered health plans that are group health plans. (Other requirements of Federal or State law, including section 609 of ERISA or section 1908 of the Social Security Act, may mandate coverage of certain children.)”
Regarding Surcharges for Dependents Over a Certain Age
“(d) Uniformity irrespective of age. The terms of the plan or health insurance coverage providing dependent coverage of children cannot vary based on age (except for children who are age 26 or older).
(e) Examples. The rules of paragraph (d) of this section are illustrated by the following examples:
Example 1. (i) Facts. A group health plan offers a choice of self-only or family health coverage. Dependent coverage is provided under family health coverage for children of participants who have not attained age 26. The plan imposes an additional premium surcharge for children who are older than age 18.
(ii) Conclusion. In this Example 1, the plan violates the requirement of paragraph (d) of this section because the plan varies the terms for dependent coverage of children based on age.
Example 2. (i) Facts. A group health plan offers a choice among the following tiers of health coverage: self-only, self-plus-one, self-plus-two, and self-plus-three-or-more. The cost of coverage increases based on the number of covered individuals. The plan provides dependent coverage of children who have not attained age 26.”
Regarding Grandfathered Plan Status
“(g) Special rule for grandfathered group health plans—(1) For plan years beginning before January 1, 2014, a group health plan that qualifies as a grandfathered health plan under section 1251 of the Patient Protection and Affordable Care Act and that makes available dependent coverage of children may exclude an adult child who has not attained age 26 from coverage only if the adult child is eligible to enroll in an eligible employer-sponsored health plan (as defined in section 5000A(f)(2) of the Internal Revenue Code) other than a group health plan of a parent.”
Read all 67 pages of the guidance by following this link
Excerpt from Fact Sheet:
- “Coverage Extended to More Children. The goal of this new policy is to cover as many young adults under the age of 26 as possible with the least burden. Plans and issuers that offer dependent coverage must offer coverage to enrollees’ adult children until age 26, even if the young adult no longer lives with his or her parents, is not a dependent on a parent’s tax return, or is no longer a student. There is a transition for certain existing group plans that generally do not have to provide dependent coverage until 2014 if the adult child has another offer of employer-based coverage aside from coverage through the parent. The new policy providing access for young adults applies to both married and unmarried children, although their own spouses and children do not qualify.
- Effective for Plan or Policy Years Beginning On or After September 23, 2010. Secretary Kathleen Sebelius called on leading insurance companies to begin covering young adults voluntarily before the implementation date required by the Affordable Care Act (which is plan or policy years beginning on or after September 23rd). Early implementation would avoid gaps in coverage for new college graduates and other young adults and save on insurance company administrative costs of dis-enrolling and re-enrolling them between May 2010 and September 23, 2010. Over 65 companies have responded to this call saying they will voluntarily continue coverage for young adults who graduate or age off their parents’ insurance before the implementation deadline.
- All Eligible Young Adults Will Have A Special Enrollment Opportunity. For plan or policy years beginning on or after September 23, 2010, plans and issuers must give children who qualify an opportunity to enroll that continues for at least 30 days regardless of whether the plan or coverage offers an open enrollment period. This enrollment opportunity and a written notice must be provided not later than the first day of the first plan or policy year beginning on or after September 23, 2010. The new policy does not otherwise change the enrollment period or start of the plan or policy year.
- Same Benefits/Same Price. Any qualified young adult must be offered all of the benefit packages available to similarly situated individuals who did not lose coverage because of cessation of dependent status. The qualified individual cannot be required to pay more for coverage than those similarly situated individuals. The new policy applies only to health insurance plans that offer dependent coverage in the first place: while most insurers and employer-sponsored plans offer dependent coverage, there is no requirement to do so.”
Read the entire Fact Sheet by following this link
Chapman Kelly has just released the first white paper regarding how health care reform will impact dependent eligibility for group health plans.
Dependent Eligibility Under Health Care Reform: Cost-Containment Strategies Employers Should Take From The Signing Of The Bill to Beyond 2014
The impact of the Patient Protection and Affordable Care Act (PPACA) and The Health Care and Education Affordability Reconciliation Act (HCEARA) on Dependent Enrollment and Cost
- The Importance of Employers Maintaining a Plan’s Grandfathered Status
- Critical Employment Provisions for Adult Dependents
- Profile of 19-25 Year-Old Uninsured Adults
- Employees’ Perception of Dependent Eligibility Under Health Care Reform
- How Status Quo Bias will Impact How Much Employers Pay for Dependents Over the Next Few Years
- Specific Strategies for the following Time Periods
- 3/23/2010 to Plan Years Beginning Before 9/23/2010
- Plan Years Beginning on or After 9/23/2010 to Plan Years Beginning Before 1/1/2014
- Plan Years Beginning After 1/1/2014
A link to download the free white paper can be found on the following page: http://www.chapmankelly.com/blog/dependent-eligibility-under-health-care-reform/
Employee Benefit News published an insightful article on the value of a DEVA (Dependent Eligibility Verification Audit) from the perspective of someone within Risk Management. It is certainly worth reading if you are struggling with the rising cost of your organization’s health plan or you are considering a Dependent Eligibility Audit (aka DEVA) for compliance reasons.
Here is a short excerpt:
“As we look at renewal every year with increasingly weary eyes, we rarely find anything that seems new or strategic. We’ve rolled out consumer-driven plans and have enjoyed some savings. We’re all used to raising copays and employees’ share of premiums. And we’ve become our organization’s wellness cheerleaders in the hope of preventing costly claims before they occur.
But this year, like a growing percentage of employers, I’m planning to look a little deeper into our group itself – maybe take a step back and kick the tires a bit. This year, it’s time consider a DEVA (dependent eligibility verification audit).”
You can read the entire article here.
Document-based Dependent Audits are the most effective way to be sure that you are paying for only those dependents that are eligible for coverage under your plan. Best practice approaches include both an initial audit as well as ongoing audits. Using a layered approach to dependent verification provides you with the confidence that on an ongoing basis, you are covering and paying for only those dependents which you intend.
Initial Audit:
Conducting an initial document-based dependent audit on your entire population would be our recommendation. Requesting actual documentation from your employees and their dependents has proven much more effective at identifying ineligible dependents than questionnaire or affidavit-based approaches. It is important to conduct this audit on your entire population rather than a targeted or random sample of dependents. Auditing the entire population is clearly the most thorough and it provides you with the largest return opportunity for your audit dollar. By auditing your entire population, no appearance of discrimination or favoritism exists. This reduces the impact on your HR team and ensures that employees understand that they are being treated equally. Starting with a document-based dependent audit on your entire population sends a message to your participant base that you are serious about keeping the cost of healthcare down on their behalf.
Ongoing Controls:
When you are planning the implementation of your first dependent audit it is important to think about how you will prevent ineligible dependents from joining the plan after the audit is complete. Clients have two primary choices on how to prevent ineligible dependents from joining their plan:
- Require Documentation at the Time of Enrollment: Some employers choose to begin requesting documentation from each employee as they join the plan. However, this can present a unique challenge to resource-strained HR departments; it also causes a significant increase in the complexity of the enrollment process. Most employers opt to conduct periodic audits to verify the status of the dependents on their plan.
- Conduct Periodic Document-Based Audits: This approach is typically chosen because it does not require significant changes to the enrollment process that can require a large investment of both time and personnel. Periodic audits should be conducted at a minimum on an annual basis. Many employers conduct these audits quarterly or bi-annually. These periodic audits put controls in place for two situations: New dependents on the plan and existing dependents that may become ineligible. At the beginning of each periodic audit all new dependents are asked to provide the documentation required to prove their eligibility. Existing dependents are asked for documentation that verifies they still qualify as a spouse or student. Ex-spouses and dependents who are no longer students make up a large portion of ineligible dependents.
A recent report by PricewaterhouseCoopers lists identifying ineligible dependents as one of the top 10 issues facing the health industry.
“Employer dependent audits: Employers are increasingly hiring experts to check whether their employees’ dependents should be insured under their benefit plans. With 3% to 8% of people failing to produce dependent verification and a $1,900 average annual cost per dependent, savings can range in the millions of dollars. For example, plans with 3% ineligibility per 10,000 dependents, can see savings of $570,000 and those with 8% ineligibility can see about $1.5 million. In 2010, demand for these audits is expected to increase.”
Read a summary of the report
 In a letter from the Defense Contract Audit Agency (DCAA), Department of Defense (DOD) contractors were informed that they will need to be able to verify that adequate controls are in place to prevent and remove ineligible dependents from the contractors’ health plans.
The DCAA indicated that DOD contractors would be subject to penalties under FAR 31.205-6(m)(1), Compensation for Personal Services, Fringe Benefits and possibly cited for Cost Accounting Standard 405 noncompliance if it is determined that adequate controls are not in place to remove and prevent ineligible dependents from being on their health plans.
The DCAA indicated that this requirement applied to both contractors that have self-insured plans and those that purchase fully-insured plans.
The DCAA also gave guidance on the maintenance of records associated with determining dependent eligibility (Birth Certificates, Marriage Licenses, etc.) when a third party is used. It indicated that the third-party auditors must be able to provide ready access to all records used during the verification process (Note: Chapman Kelly provides fully indexed PDF copies of all records to each of its clients). The DCAA’s statement would seem to give preference to documentation-based approaches, rather than questionnaire or affidavit-based audits.
Amnesty periods were also mentioned in the letter. If the DOD Contractor chooses to offer an amnesty period, they should be able to account for the cost impact of the voluntarily dropped dependents. The cost for any ineligible dependents will not be reimbursed by the DOD regardless of whether or not they voluntarily dropped from the plan.
The DOD’s acknowledgement of dependent audits and ineligible dependent controls as a mandatory compliance measure is very important to any company that might be contracting with the government. If your company hasn’t yet conducted a dependent audit, or would like to discuss the controls you have in place feel free to contact us.
Tony Schy, Partner, was quoted in an article on the effectiveness of dependent eligibility audits in reducing employer health plan costs and helping the employers with compliance.
“These days, employers will stop at nothing to eliminate excessive health plan costs. Increasingly, more benefit managers are finding they can wipe out millions of dollars worth in one fell swoop by conducting dependent eligibility audits.
Employers conducting such audits generally realize 3% to 12% of covered dependents are not eligible for their plan…”
To read the rest of the article follow this link to the original story:http://ebn.benefitnews.com/news/dependent-audits-surge-as-employers-look-for-cost-cutting-alternatives-2681391-1.html
We published an article in the June issue of Benefits Selling. Below is an excerpt:
“Dependent-eligibility audits are an all-too-often overlooked cost control tool
Employers continue to use an arsenal of strategies to help control their health care costs. Wellness and disease management programs, consumer-directed health plans, and quality initiatives are all valuable tools in an employer’s armory.
But what if the most effective weapon was well within their reach, but wasn’t being used? Many employers have found that dependent eligibility audits can dramatically reduce their health care costs. Brokers who understand how dependent eligibility audits work, and how to discuss them with their clients, have a rare opportunity to strengthen their relationships and possibly gain new customers.
A recent risk
During the last 20 years, human resource departments have benefited from the integration of technology into most of their core processes. Payroll systems, recruitment software, and enrollment management software all have helped automate tasks that once required a large amount of paper shuffling. However, this paperless automation has brought with it an unforeseen risk….”
Read the rest of the article by following this link
More Information about Dependent Eligibility Audits
As Human Resource and Benefits professionals you understand the importance of confidentiality and security when handling sensitive personal data and health care information. During a dependent audit some of the most sensitive employee data available is gathered and processed. This data includes: Birth Certificates, Divorce Decrees, Tax Forms, Marriage Licenses and many other documents. If you are considering a dependent eligibility audit it is important to make sure that your vendor has the proper controls and processes in place to protect your employees data.
New HIPAA regulations also require employers to learn more about who their vendors may be subcontracting with for services. A recent article in Employee Benefit Adviser indicated that “Health plans are going to have to be more diligent about knowing who their business associates are and who their business associates contract with downstream“. Security is not only important to your organization, but it is also one of the top concerns of your employees should you choose to perform a dependent audit.
Since dependent verification audits are a growing industry right now, many vendors are entering the marketplace to offer these services. While increased competition is always good for the consumer, it can also create situations where the vendor’s processes are not properly designed to handle the sensitive data of your employees.
Document Receipt
Documents can be sent to the vendor through many different channels. Here are few considerations regarding the two most highly utilized channels.
Postal Mail – Is mail delivered directly to the vendor, or is it sent to a third-party? If it is sent to a third-party this introduces another organization into the process that must be properly investigated and vetted. The more organizations that are involved in handling your employees sensitive data, the higher the chances are of a security breach. Are the physical documents shuffled around the office during the entire verification process? If your vendor does not electronically image each document as it arrives there is a greater chance of not only losing the documents, but there is also an increased exposure to document theft. Where are the physical documents stored? Whether the documents are stored with a third party or directly with the vendor you should ask whether or not they have security cameras, badge access, and other measures in place to limit access to these documents.
Fax – Does the vendor use a traditional fax machine to receive faxes? If so, is this fax machine in a secure location with limited access? If they use an electronically based method for receiving faxes, is access to this channel secure? Do they have the computer properly locked down so that individuals can’t email or save documents to a USB drive.
Part 2 of this series will discuss document processing and call center operations.
A survey conducted in late April by the International Foundation of Employee Benefit Plans indicated that many plan sponsors are seeing increased utilization of their health plans during the financial downturn. Here is an excerpt from the press release:
“About one-third of plan sponsors have noticed an increase in the number of participants filling prescriptions and engaging in costly medical procedures before their insurance runs out. Twenty-four percent of plan sponsors have observed growth in the number of participants adding dependents to their plans. At the same time, 17.8% of plan sponsors have introduced or are considering dependent eligibility audits.”
http://www.ifebp.org/AboutUs/PressRoom/Releases/HCPlanFinCrisisSurvey.htm
Question 1: Isn’t my enrollment vendor already verifying the eligibility of the dependents on our plan?
Question 2: When the average person looks under the hood of a used car, can they really tell if anything is wrong with it?
Answer to Question 1 and Question 2: Not Really
A large number of organizations are under the impression that their enrollment vendor is verifying the eligibility of the dependents on their plan. But this is a dangerous assumption. The problem with most of their verification processes is one of both consistency and thoroughness.
First of all, every enrollment vendor has a distinct process. Most of these third-parties only concentrate on college student eligibility and ignore the other categories of dependents. They are right to focus on the student population, because they typically represent between 35 and 50 percent of the ineligible dependents on a plan. However, their verification process is typically not sufficient.
For example, some third-parties only check for student status when a claim comes in to be processed. This doesn’t eliminate all of your risk, or your loss of administrative fees for dependents that don’t have a claim. And even when these third-parties do attempt verification, the process is not thorough. Most will only ask for the employee to call in and verbally verify that their child is still a full-time student. Some do in fact require a copy of the student’s schedule. Some third-parties then allow this “student” to stay on the plan for another 4 years without another request for documentation. If this process sounds questionable to you, you are correct. Only around 50% of college freshman actually have a degree 6 years later; a significant number drop out within one or two semesters. If you combine this relaxed verification process with the fact that most insurance companies and enrollment vendors don’t even attempt to verify any other types of dependents, you are very likely to be paying for dependents who are not eligible.
It might be time to find out exactly what your enrollment vendor is actually doing to verify dependent eligibility. You should take a look at the contract language and ask a few questions about how exactly their process works. If your experience is similar to most organizations, you will find an area that is in desperate need of attention.
Most people are not aware that there are laws that govern Coordination of benefits. In my experience, most consumers think they can just pick which Insurance carrier that they want to be primary. For example, a spouse on a plan may also carry his/her own coverage through their employer. However, that policy may have a higher out of pocket maximum, so they do not use that particular carrier. The same is true for a family policy. In a situation where dependent children are covered under two policies, the one that has the “better” benefits is typically the one that is utilized. In both situations, choosing your primary carrier is not an option. Most carriers have adopted the standard NAIC rules of coordination of benefits. A spouse on a policy who has their own coverage through their employer must use that coverage first. In the case of dependent children with dual coverage, the parent with the earliest birth month in the year will be the primary carrier. These are the top two NAIC rules that are commonly misunderstood and not followed.
The same beliefs are seen when Medicare is involved. A person with Medicare may believe that if they have a group insurance policy, regardless of employment status, that the group insurance carrier will be primary. Medicare rules are governed by Federal Law. Unlike commercial carriers where you can choose to adopt the NAIC guidelines, if Medicare is involved, the carrier has to apply the Medicare rules. The most common misconception with those who have Medicare based on Age or Disability entitlement is that if they are actively working, their group insurance will be the primary carrier. In this instance, primacy is determined by the size of the employer, not the working status. This is just one of the many Medicare rules that is not always followed.
Often, it is not the insured’s fault that claims are not coordinated properly. An employee may go to the hospital or their physician and present both insurance cards in good faith. However, the billing department for the provider does not bill the correct carrier first. Provider billing departments may not always know the correct rules to follow and will bill based on what the patient tells them.
Each of these situations and many more will be uncovered during a comprehensive claims audit.
Self-Insured employers have the opportunity to recover a substantial amount of money from a recent settlement regarding Average Wholesale Price and how it was used to pay pharmacy claims between 2001 and 2005. However, claims must by filed by July 9th 2009. Read more about the opportunity at the AWP McKesson Settlement website.
Choosing what documents to require during a dependent audit is an important step in an effective audit process. Many organizations only require a marriage certificate in order to prove this relationship. While this is certainly acceptable, it is important for employers to understand how this decision will impact the audit.
A marriage certificate only proves that a couple was legally married on the day that the certificate was issued. However, additional documentation might be necessary to ensure that the couple is still married. In addition to the marriage certificate, we recommend asking for one form of current documentation that establishes financial interdependence. This could be a 1040 Tax Form(with the financial information redacted), a joint bank account statement, a lease, or a mortgage account statement. Whichever document is chosen, it should be current with both names and a common address listed. If only the marriage certificate is required, then an employer will have less of a chance of identifying individuals who are no longer married. Common law marriage is another situation which won’t be reflected by requiring only a marriage certificate.
Another option many employers consider is to only require a 1040. But, they may not get an accurate picture of the legal state of the union if they rely solely on this document. As the IRS knows, many individuals don’t always file their income tax returns within limits of the law. Many married couples will both file Head of Household, each claiming a child as a dependent. This means they will pay less tax, but this savings puts them at risk if they are audited by the IRS. Situations like this will make it difficult to determine if the couple is actually married from the sole use of a 1040.
The decision about which documents to require is ultimately up to the employer, but understanding the ramifications to those decisions is important.
|
|
