The article—“Curbing Health Care Costs through Eligibility Audits”— presents a real-life example of how dependent eligibility audits can help educational institutions address the significant budget constraints that they’re currently facing.

The audit Flaherty describes in the article ultimately resulted in $3,567,500 in cost-avoidance savings and a 2,497 percent return on investment for a large school district consortium.

The find out more about how these results were achieved, read the full article here, or copy this link in your web browser, http://www.aasa.org/content.aspx?id=21458

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Another factor to consider in determining the inclusion of these groups can be the ability to obtain data (such as dependents name(s), mailing address, etc.) for them.  Many employers use a third party to administer COBRA coverage and can have limited access to files for this group. Surviving dependents are often updated in data for ease of handling to reflect the spouse as the primary participant of the plan making it a little more difficult to differentiate this group from others.

Careful consideration of the challenges inherent with these groups is necessary during the planning of the audit in order to avoid issues from arising during the process.  In many cases, the administrative burden or financial costs involved can make including these groups in an audit not worth the extra effort.

Learn more about different types of dependent audit participants as well as our experiences within each group at: www.dependentcheck.com/audit-guide/audit-participants.

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• Can confidentially of information be upheld?
• Can employee’s documents be processed efficiently?
• Can documents be properly associated with the plan member and their dependents?
• Can data be tracked and stored effectively?
• Can calls and questions be answered in a timely manner?
• What documents will you require to verify a dependent?
• How many hours do I dedicate my team/staff to opening, storing, and processing mail?
• Do I utilize my team or hire temps to answer the phone for DE Audit specific questions?

For employers to learn about conducting a Dependent Eligibility Audit, visit The Dependent Audit Guide.

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According to the LA Times, “California, with nearly 21 million people in health maintenance organizations, is driving the rapid expansion of these networks. More than 10,000 California employers and public agencies have enrolled, mostly since the recession struck in 2008.”

The good news: this is a cost effective solution; insurance premiums can save as much at 25%, which is why many workers are welcoming the cheaper HMOs. However, the doctors, hospitals, and other care providers are limited and many employees will need to switch providers. “…you may end up in a plan that covers only half the doctors in your area, and you may have to pay full cost if you go outside your plan’s network.” (John C. Goodman, “Health Care Overhaul Could Ironically Increase Consumer Power — for Some,” Health Care News, April 8, 2011.)

Rather than switching to Limited Network Plans, many employers are deciding to conduct a Dependent Eligibility Audit to reduce costs to them as well as their employees. To learn how your organization can save money without employees having to give up their care provider, visit The Dependent Audit Guide.

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Response to the program was among the highest seen, with 97% of the participants completing the process fully.  The audit found 7% of the dependents to be ineligible based on the voluntary termination of the dependents by the participant.  Just over 3% of the dependents included in the program were removed due to life events that occurred outside the audit process such as an employee who left the organization or a child aged out.

A Dependent verification program helps employers provide benefit coverage to their eligible dependent population in a more cost effective manner.  Based on the results of this program, the NMCMSDP and the 38 school districts can now move forward with knowing their current dependent eligibility is accurate.   Now, armed with recommendations for maintaining the results in the future, NMCMSDP can continually check for dependent eligibility with new enrollees.

For additional information by a local New York news service, click the following link:  http://www.waynepost.com/latestnews/x447615239/Schools-health-care-costs-audit-saves-millions.

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We have performed dependent eligibility audits since 2004 and have never had one client identify less than a 2% ineligibility rate. Here is a typical example with regard to the results of a random sample dependent audit:

• Assume an employer performs a random audit of a sufficient number of employees and it finds that 4% are actually ineligible for coverage. This random audit has indicated to the employer that ineligible dependents are indeed a problem on their plan.
• The random audit has indicated that a problem exists, so the employer should take some sort of action to correct the problem with their plan.
• The only logical action from that point is to audit everyone and put processes in place to stop ineligible dependents from joining the plan. This causes an unnecessary delay in removing ineligible dependents. The plan is also paying for these ineligible dependents between the time when the random sample audit is performed and when they perform the 100% audit.

Sample Selection Method – If an organization does choose to perform an audit on a sample of their employees, it is very important to choose this population carefully. We recommend that it be chosen on a randomly selected basis. There are times when it might make sense for employees to be selected based on employment criteria such as active vs. retiree or a similar category distinction. However, we highly discourage employers from selecting this population based on criteria such as family size, spouses with different last names, age difference between spouses, and other such criteria. Selecting in this targeted method can not only cause employee upheaval, but also threats of litigation if employees suspect they are being targeted.

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As an employer, it is important to ensure you are going through the process of identifying the right approach for your dependent eligibility audit. Roughly 2-3% of our clients choose a random sample audit over a 100% audit. Below are some items for consideration as you think about which approach is right for your organization.

Random Sample Dependent Audit Positives:

1. It has a lower initial cost which can streamline the procurement process in some cases.
2. A Random Sample Dependent Audit would impact fewer employees.
3. If the audit is performed internally, a random audit can lower the time commitment needed from HR staff.
4. It provides a reasonable assessment of whether ineligible dependents are an issue with the Plan. However, if dependents are not currently being verified with documentation the Plan most certainly suffers from ineligible dependents.

Random Sample Dependent Audit Negatives:

1. A 100% Dependent Audit results in dramatically higher cost savings. Since Dependent Eligibility Audits have a return on investment of between 500 and 2,500%, the less money that is placed into the project will result in far less savings.
2. A 100% Dependent Audit lessens the chance that employees feel singled out or targeted by the process. Even if the organization decides to perform a Random Sample Audit (see Sample Selection Method in Part II) of a percentage of its employees, some employees will talk to their coworkers about the process and find out the coworker was not selected.
3. Many organizations perform Dependent Audits for compliance reasons as well as the cost savings they provide. A Random Sample Audit does provide a reasonable assessment of the Plan, but it is important to consider what will be done when the random audit indicates ineligible dependents are an issue. Most employers who have started with a Random Audit have followed through with a full audit directly after.
4. Recent legislation regarding rescission in Healthcare Reform requires that if Plans identify that an ineligible dependent is using a significant amount of funds, employers have very little recourse to recover those funds. They are required to prove that “fraud or intentional misrepresentation” occurred, which is a very high legal standard.

A full 100% audit of dependents eliminates accusations of discrimination and unfair treatment.  They achieve greater compliance and generate more cost savings with a higher ROI.  Partial or Random audits can be used to “gauge” the problem (see Part II) but they don’t fix it.

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A: From the language in health care legislation, “…plans and issuers cannot rescind coverage unless an individual was involved in fraud or made an intentional misrepresentation of material fact.”  A group health plan must provide at least 30 days advance written notice to each participant who would be affected before coverage can be rescinded.  This applies to both self-funded or fully-insured groups.

An employer cannot retroactively terminate an employee or their dependent unless it can prove fraud, which is not easy to do.  A first step that we suggest to our clients is to include language about the definition of fraud into their Summary Plan Descriptions (SPD).  For more aggressive direction, we would recommend your organization seek legal counsel.

The conservative road is not to retro term.  For a specific clarifying answer related to dependents and retro termination, the Department of Labors’ site can provide direction (www.dol.gov/ebsa/faqs/faq-aca2.html).

To learn more about dependent eligibility, please visit The Dependent Audit Guide.

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There are three questions to ask when implementing this type of review:

• Will you remove an adult dependent that fails to return the affidavit? You will want to be clear of the consequences to employees of non-compliance with the program.
• What will your approach to the affidavit be—soft or strict? There are options on the affidavit that allow you to take different approaches.  For example, you may want to use a document that only the employee has to fill out—not the dependent’s employer. This approach would be soft and more of an attestation completed by the employee that asserts the dependent meets the guidelines.  Alternatively, you could require the form be completed by the child’s employer for a more robust process to ensure strict adherence to the guidelines. The approach you take very much depends on how tightly you would want to manage the process.
• Would you audit adult dependents only or roll into an overall dependent verification program? You have a choice, you can audit all covered dependents or just the adult dependent population. Should you choose the entire population, this would ensure compliance of all dependents in your benefit plans and not just a subset of the population.

You should choose an option that best fits your culture and meets your organization’s needs.  The ultimate goal is to ensure that all covered dependents on your employer’s sponsored health care plans actually meet the guidelines to be covered.

To learn more about your options under a grandfathered health plan, read our White Paper or visit The Dependent Audit Guide.

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The study reinforces the significant challenges employers’ face with their ability to reduce or maintain health care cost moving forward.  Twenty-one percent of those surveyed said they plan to implement a medical claim audit and 23% will review health care benefits as part of a total rewards strategy.  In fact, with dependent coverage, 62% of employers will increase employee contributions for dependents, with 35% currently using or planning to implement spousal waivers or surcharges.

Implementing a Dependent Audit will keep benefits costs down for your organization and your employees and could offer a significant return on investment.  Learn more about this solution by visiting The Dependent Audit Guide or Contact Us.

A link to download the full survey report can be found by clicking below: http://www.towerswatson.com/assets/pdf/3946/TowersWatson-NBGH-2011-NA-2010-18560.pdf

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