A dependent eligibility audit can provide a typical ROI of nearly 15% and millions of dollars in cost savings. In this new age of health care under the Patient Protection and Affordable Care Act, most industry experts say audits will continue - and all say they will remain an important way to reduce overall health care spend.
"There aren't many places in benefit plans that you can in a few short months turn up 10% savings," says Karl Ahlrichs, a senior consultant at Indianapolis-based Gregory & Appel Insurance. "From a financial standpoint, it's worth doing; just make sure you have the cultural ducks in a row before you do it, because if people have gotten away with [ineligible dependents], it's become an entitlement to them."
Despite an outward appearance that PPACA will decrease ineligible dependents due to the extension of coverage to those under age 26, Ahlrichs believes that PPACA will actually increase the number and significance of dependent eligibility audits, largely due to an expected increase in overall health care costs.
The law cleared up some questions, "but this whole idea of reforming how insurance is paid for and how it is handled is causing a lot of scrutiny of how many people are on the plan and who qualifies and who doesn't," he says. "I think there will be a spike in dependent eligibility audits, and at the same time people are scared. There is a lot of opinion flying around out there that a short-term impact of all these reforms will be a short-term increase in costs."
PPACA's impact
There is no requirement to provide health insurance for dependent spouses under PPACA, which has translated into a growing emphasis on spousal surcharges and spousal exclusions, says Eric Helman, president of Atlanta-based ContinuousHealth LLC. "If you put in a program like that and also don't implement document verification of that you will only have 44% compliance," he says his company's research has found.
"PPACA is going to expand peoples' interest in having that kind of plan design; having a spousal exclusion," Helman says. "We are seeing employers adopt this with increasing frequency because they want to manage cost.
"Several of PPACA's fees like reinsurance are levied at what we call the belly-button level - the more members you have, the higher you pay. This has increased employer interest in dependent eligibility management," he adds. "Many employers [previously] said, 'I don't care if I have one to two more kids on family coverage because they don't make more claims.' Now that you have PPACA fees leveled at the belly - it is 'I don't mind providing coverage for employees, but I want to make sure only provide coverage to those that need coverage.'"
Colin Bradley, vice president of business development at Manasquan, N.J.-based Winston Benefits, thinks the question of whether the numbers of audits will change is a difficult one because in recent years audits have started raising overall internal compliance from employers. "People who used to collect no information have started doing so," he says.
Overall, PPACA will not have a huge impact, says Sara S. LaVallee, senior vice president of the employee benefits practice at William Gallagher Associates in Boston. "PPACA has impacted dependent eligibility audits but I don't think there will be any changes," she says. "It's a sort of subtle impact. I don't think it will impact or deter them. ... With exchanges, there might be less of a need. A lot of companies will see [health plan] membership go down."
Undertaking an audit
Despite the large overall cost savings, an audit can be very disruptive to employees, those who have undertaken them, say. A typical audit begins with an letter that explains to all employees what is about to happen and requests documents including marriage certificates, birth certificates, court rulings, etc., from them. It all depends on the language of their health plan, says Paul Vosters, president and COO of Rolling Meadows, Ill.-based Discovery Health Partners. A large majority of employees will not respond, so a second letter must be sent out, he says.
"Like any change management, this interruption of the normal flow will disturb the organization," he explains. To overcome that, communication is key, and Vosters says that includes going as far as putting posters up explaining how this is good for the company and the savings they will find will be invested in programs for the employees - such as wellness and fitness. "You need to make sure the organization and employees feel that an audit is not only for the company, but for them," he says.
Thorough communication and engagement with the employee population is key, agrees Bradley. "We counsel our client ... and include figures about the money you spend on health care, maybe even break it down on a per-person cost. We tell them to tell the employees, 'We spent $10 million on health care, $10,000 a person. In order for us to continue to provide competitive health care in the future, we need to use everything to keep our plans in compliance.' I think if you engage them that way, you will see a lot of success."
Ahlrichs agrees it's important to explain the financial impact. "This project can make headlines with employees saying, 'You don't trust us,' but an employer can respond, 'Our benefit plan, our total compensation plan is one of the most valuable, most expensive things our organization offers and it has to be fair to everybody in it, and we have to be frugal with it,'" he explains. "'We have a fiduciary responsibly to make sure benefits are properly priced.'"
Communication and ongoing contact is the "silver bullet in shifting the perception of negativity," he believes.
On average, the number of ineligible dependents removed from a plan as a result of the audit process is 5%-12%, according to ContinuousHealth. Aon Hewitt says in a white paper that their clients have seen an average of 10.7% ineligible results from the audits.
A Secova case study posted online of a large dependent eligibility audit at a Midwest hospital system achieved an ROI of 14 to 1, a cost reduction of nearly $3 million in the first year and found 5.09% of previously enrolled dependents were ineligible.
Further, a case study by Milliman discusses a health plan of which 75% of participants had a covered dependent and in the end, 1,013 dependents were discovered to be ineligible and removed from coverage, resulting in a $2.8 million savings for the unnamed company in one year.
Broker's role
A broker plays a key role in explaining audits and making sure they are properly undertaken either by the broker or a third party. "I think every broker should present [a dependent eligibility audit] as an option or strategy," LaVallee says. "When you go to the employer and tell them about 2014 and pay-or-play, it's a great way to have you considering doing this because you will save a great deal of money.
"It's a prudent action to take in light of increase costs and in light of running a plan that is managed tightly," she adds. "If you have not required proof of dependent status, the best way is to start with an audit, clean up the plan, and moving forward request all that documentation. It's the best way to ensure you aren't paying expense claims for people who have no business being on the plan."
5 TIPS FOR A LESS PAINFUL AUDIT
Dependent eligibility audits can lead to confusion, frustration and anger among employees. It's easy to misunderstand the purpose of audits, and let's face it: rustling up various legal documents isn't fun for anyone. Here are five ways to make your next dependent eligibility audit more efficient and effective:
1. Start with a specific, quantifiable plan. You've heard it before, but it's worth saying again - upfront planning is the most important aspect.
2. Communicate with a steady drum beat. Create a thorough communications plan that considers all the ways you can reach the workforce. Devise a strategy to tap these various channels not just once, but in a cadence designed to inform, educate and remind employees about the purpose of the audit.
3. Tap technology for process automation. To optimize dependent verification effectiveness, seek out newer, Web-based applications that house details for each employee and their dependents.
4. Leverage analytics for insightful reporting. On-demand reporting and analytics can measurably improve an audit. By tracking and monitoring each step, you can see what's working and what's not, and thus drive process improvements.
5. Outsource if possible. If any of the above sounds daunting, then outsourcing may be for you. More companies are partnering with dependent eligibility audit specialists because DEAs are a huge drain on resources.
- Paul Vosters, president and COO of Discovery Health Partners
