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.
Tony Schy recently published an article on dependent eligibility audits in Employee Benefit Adviser.
“Dependent eligibility audits are a hot topic. The high return on investment has helped this cost containment strategy become a central point of discussion between many advisers and their clients. While audits can be extremely effective, advisers should make sure that their clients avoid some of the most common mistakes that can send these projects off track….”
Click on the following link to read the rest of the article: Do Not Let Your Clients Make These Six Dependent Audit Mistakes
If your organization is going to conduct a dependent eligibility audit, you should consider new federal requirement regarding Third-Party Administrators and their reporting of Social Security Numbers (SSN). Your TPA’s will start requiring all employers to provide SSNs for all covered individuals.
“A new Mandatory Insurer Reporting Law (Section 111 of Public Law 110-173) requires group health plan insurers, third party administrators, and plan administrators or fiduciaries of self-insured/selfadministered
group health plans to report, as directed by the Secretary of the Department of Health and Human Services, information that the Secretary requires for purposes of coordination of benefits…Two key elements that will be required to be reported are SSNs (or HICNs) and EINs.” Source:https://www.cms.hhs.gov/MandatoryInsRep/Downloads/CollectionofSSNsHICNsandEINsTINsALERT.pdf
If you do not have all of the SSNs for your employees’ dependents, a dependent eligibility audit can be a great time to gather this information.
A recent survey by the International Foundation of Employee Benefit Plans indicates that dependent audits are being used by a significant amount of employers to cust costs.
“With cost-savings in mind, some employers are conducting dependent eligibility audits to accurately determine who is covered under their plan. A recent survey conducted by the International Foundation of Employee Benefit Plans found that 26% of U.S. employers conduct eligibility audits for their health care plans.”
Read the rest of the press release here: http://www.ifebp.org/AboutUs/PressRoom/Releases/pr_021909.htm
New Jersey’s dependent verification project continues to suffer from poor communication. An article in The Daily Journal states:
“State workers and their unions are seething over the way an audit of New Jersey’s health care plan is being conducted.
It’s been three weeks since the state launched the review of roughly 225,000 public employees to root out ineligible dependents receiving health benefits.
According to some employees, letters were sent asking them to gather copies of birth certificates, marriage or civil union licenses, and 2007 income tax returns. They were told to send the information to a post office box in Illinois.”
In our experience, unions will usually understand and support the process if their leadership is included during the early phases of the project. It is important to help the union leadership understand the problem of ineligible dependents, and how it impacts their membership. If handled correctly the union can help reinforce the need for the project as well as assist in communicating important deadlines through their communication channels.
If this best practice is not followed, companies might end up fighting a battle that could have been avoided with good communication.
“It’s the little details that are vital. Little things make big things happen.” – John Wooden
As I mentioned in a previous post, early communication with your employees is critical to the success of a dependent eligibility audit.
Today’s news brought an example of what can happen if this early communication isn’t carefully considered. The State of New Jersey is in the early stages of a dependent verification project performed by a large consulting firm. The State’s largest paper reported today that the project is drawing early criticism because of the mishandling of some of the early communications.
“Several public employee representatives who serve on the commission criticized how the state, which has sent out about 25,000 letters so far, has gone about conducting the audits.
They said public employees were suspicious of the audit letters they began receiving at the end of last month, because they did not recognize the name of the consultant that had sent out the mailings, an actuarial and benefits management firm known as AON.
Some employees had security concerns, thinking the requests for documentation were phony, while others threw out the letters as junk mail.” Read the entire article…
Even though the letters have only been sent to 10% of the population thus far, it shows how important it is to follow the best practices of communicating with employees from day one.
We advise our clients to make sure that the early communications are co-branded with your organization’s logo and the logo of your vendor. It has been a process that we have followed for the last five years without incident. We also recommend introducing the company very early in the process with newsletters, postings on bulletin boards, etc.
As you consider which vendor you are going to use for your dependent verification project, make sure you pay attention to the vendor’s specific experience in conducting these audits…and pay very close attention to how they handle the details.
The motivations behind why an organization might consider conducting a claim audit are endless. However, below are the 6 most common:
Compliance/Sarbanes Oxley/Fiduciary Obligation: Most organizations retain a fiduciary obligation to operate the plan in the best interest of the plan participants. Health benefits usually represent a large expense. Making sure that shareholder resources are being spent properly is often a focus of internal audit departments. Sarbanes Oxley requires that reasonable check and balances be instituted. And common sense tells you that periodically, it is a good idea to make sure that your getting the accurate service that you expect.
New Plan/Plan Changes: Changes that are made to a plan or the implementation of a new plan often lead to interest in ensuring that the changes are implemented properly. While it may seem obvious, if the changes aren’t implemented properly and in a timely manner the desired objective of the change will not be realized.
New Plan Administrator: When you change or add a new administrator to the mix, it is common to conduct a post-implementation audit. This is often done after the first few months of claim processing and ensures that the plan was implemented properly.
Recovery of Funds: When economic times are tough, and even when they are not, many organizations want to retrieve overpaid claims to the maximum extent possible. This is one of a variety of methods of cost containment that organizations are widely adopting. However, proceed with caution as there are many pitfalls that can significantly inhibit your ability to achieve these results. See here for more information on the common pitfalls of conducting an audit focused on the recovery of overpayments.
Specific Concerns: From time to time, most organizations experience administrative problems with their health plan. Sometimes the problems are administrative or of minor impact. Other times they are more evasive and have substantial monetary impact. When this occurs, many organizations will choose to employ a specialist to help quickly investigate the problem.
Utilization Changes: When an organization identifies an unexpected utilization trend – either positive or negative, it is an indication of potential problems with the administration of the health plan. In some situations, there are circumstances that reasonably explain the trend upon a high-level analysis. In other cases, there is no logical explanation. This is often a queue to consider an audit.
Well, at least it is one of the questions that many employers ask when contemplating a dependent eligibility audit. While you can certainly make a compelling case in either direction, here are a few things to consider [Follow this link for a primer on how an Amnesty program fits in to an audit]:
• A dependent eligibility audit is invasive. An Amnesty phase to your audit is one method to “ease” into the process. If effectively communicated, it conveys the message that you are not “out to get” employees or are trying to maximize the number of people being eliminated from your plan.
• If you heavily communicated the importance of understanding eligibility definitions during your recent open enrollment, an Amnesty phase may be less beneficial.
• If you conducted an active re-enrollment recently, an Amnesty phase may be less effective.
• An Amnesty phase does not add (nor does eliminating it save) a large portion of the overall costs. The largest expense will be the procurement, printing and postage of an outbound mailer. The volume of responses and inquires will be relatively modest (assuming you make the response to the Amnesty phase optional.)
• With an Amnesty phase, you may get better overall results. There are a small percentage of people that once they realize they are covering an ineligible dependent (either accidentally or intentionally) will be fearful of repercussion. They will take advantage of the Amnesty phases “get out of jail free card,” but they may be leery of confessing otherwise. Their dependents will still get removed from the plan but they may end up requiring you to drop them from the plan rather than the employee voluntarily dropping them.
• The corollary to the prior point is that audits without an Amnesty typically have a higher non-response rate at the end of the project. And since most employers would prefer a high response rate, a separate Amnesty phase is one strategy to achieve this objective.
• A distinct Amnesty phase will add to your overall timeline. Typically, the phase is around 30 days. With additional planning time, you could expect it to add 45 days to the project timeline.
Coordination with Medicare is one of the more challenging processes for many third-party administrators. Many times they are unaware if your employees are carrying Medicare or are eligible to receive it and are not signed up for coverage.
This can be a significant and costly problem for your company when you have active employees who are also eligible for Medicare. Be careful not to assume that this only impacts your population over 65 years of age. There are many reasons that will allow those under 65 to also be eligible for Medicare. Having strong language in your plan designs will not only help your employees understand their responsibilities, but it will also help you if you identify overpayments during an audit.
Example:
“If you are eligible for or enrolled in Medicare, please read the following information carefully. If you are eligible for Medicare on a primary basis (Medicare pays before Benefits under the plan), you should enroll for and maintain coverage under both Medicare Part A and Part B. If you don’t enroll and maintain that coverage, and if we are the secondary payer as described in we will pay Benefits under the Plan as if you were covered under both Medicare Part A and Part B. As a result, you will be responsible for the costs that Medicare would have paid and you will incur a larger out-of-pocket cost.”
Comments:
The language here is good in that it has a clause that indicates that the plan will pay as secondary even if the participant doesn’t enroll. However, it does not require the participant to notify the employer and the TPA. That language would help both the employer and the TPA to better understand the Medicare status of all employees. You could also replace the word “should” with “must”. That will help communicate the importance of this process to the employees. It would also be helpful to list some of the common reasons that employees may be eligible for Medicare, and point them to some resources to better understand their eligibility. This language was also under a separate Medicare section. This is fine if the person understands that they are eligible for Medicare and decide to look in this section. But, it would be better to place it early in the document under a section most employees would read.
Considering these points will help your company reduce its health care costs and give you more leverage during a medical claim audit.
“If there is any great secret of success in life, it lies in the ability to put yourself in the other person’s place and to see things from his point of view – as well as your own.” –Henry Ford
One of the most important factors in completing a successful dependent audit is understanding your employees’ point of view of the process. When employees are properly informed of the verification process and the reasons why it is being completed, you will find that it goes much more smoothly. Here are a few items to keep in mind when communicating to your employees:
Reasons for Conducting the Dependent Verification Process:
- Compliance – Depending on your organization’s unique situation, you will have a responsibility to make sure that only eligible dependents are enrolled in your organizations plan. This responsibility could emanate from ERISA, Sarbanes-Oxley, state legislation, or your shareholders. Communicating your organization’s responsibility may help your employees better understand theirs.
- Financial – While you probably shouldn’t point out the return on investment of the dependent verification project, you can mention the magnitude of the problem of ineligible dependents and what it means to your employees. You can use a case study or examples of other firms that have completed these audits and what percentages of ineligible dependents were found. The bottom line is the ineligible dependents on your plan are taking away funds from other activities such as: maintaining benefits for those who are eligible, salaries, and other benefits. Stressing the fact that a problem exists and that it is impacting your employees will help them understand the reasons why your organization is completing a dependent audit.
You should communicate with your employees through every effective channel that you have at your disposal. Company Newsletters, Bulletin Boards, Email, and proprietary messaging systems can all be used to notify your employees of important deadlines within the project. It is helpful to develop these communications with your vendor so that they are aware of the timing of them, and so that they can help you craft the message. Experience with multiple clients proves very valuable, and they can help your hone your message. Multiple channels of communication will greatly increase the level of compliance and response during the course of your audit.
One effective way of letting your employees know that your entire organization is behind this initiative is to include a personal communication from a top-level executive within your company. If possible, have this executive verify their dependents early in the process and indicate this in the communication. If the employees receive a communication that an executive has personally went through the process, it may help them to comply as well.
Look for more tips about communicating with employees in future posts…
We published an article in January’s publication of The School Administrator. Below is an excerpt:
“In late 2007, an employee of Macomb County, Mich., carefully tabulated the health care claims paid on behalf of one individual and her two dependents during the last eight years. The total came to nearly a quarter of a million dollars.
With the rising cost of health care, the figure wasn’t astounding at first glance. What made this situation remarkable was that this individual worked for the county for only eight days, and that was more than seven years ago! The county had stopped her paycheck upon termination, but they unknowingly continued to pay her health benefits.
Unfortunately for employers, paying for the health benefits of individuals who are not eligible is far too common. Yet former employees represent only a small number of these individuals. It is dependents of current employees who account for the majority of ineligible persons receiving health care benefits. This is a result of employees who list them as eligible for coverage, despite the fact they do not meet the requirements of the plan. Because of this reality, school districts are turning to dependent eligibility audits to ensure benefits are only paid on behalf of eligible dependents….”
Read the remainder of the article by following this link to their website.
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