Looking for savings, advisers turn to dependent audits

At a time when benefit professionals are struggling to contain healthcare costs, dependent benefit audits represent a way of pruning low-hanging fruit and investing in employees.

“People just sometimes don't understand the rules, and if someone lives with them or is under their care, they put them on their plans,” says Bradley Taylor, EVP of strategic partnerships at PlanSource, whose benefits technology platform reaches nearly 3.5 million consumers.

Anna Simmons, who heads up the platform delivery team at Hodges-Mace, agrees that employees aren’t trying to defraud the system. “It's just that they don't know who's eligible or don't realize that the niece that they've been raising since birth isn't eligible for coverage because they never legally adopted her,” she says.

Since 2007, PlanSource has found that 6.2% of dependents listed on benefit plans on average are ineligible for a multitude of reasons, costing anywhere from $10,000 to $100,000 or higher in some organizations. They include divorce, custody issues that no longer apply and attempts to cover an ineligible fiancée, parent, grandchild, niece, nephew or neighbor.

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Employer clients with a self-funded medical plan typically shell out $3,500 to $7,500 per covered dependent for benefits. Taylor says these wide-ranging costs depend on several factors, including the individual’s age and quality of the plan. About 45% of the dependents who are removed on a fully insured benefits audit may affect premium savings to the customer.

The adviser’s new Dependent Eligibility Savings Calculator allows companies to determine how high their potential savings could be from a simple audit of this area, which takes about 90 days. About 40 such projects are currently underway.

Similar numbers have been found across Hodges-Mace’s book of business. For example, a range of 5% to 12% of dependents typically is ineligible — with higher rates seen in groups of 500 employees or more.

The provider of benefit management software and services also notes that its clients usually pay $3,490 per dependent each year. Blue-collar groups tend to have a higher percentage of ineligible dependents, including a large number among hospital clients, Simmons reports.

Ironically, widespread use of technology could help explain why some ineligible dependents aren’t being caught. With online enrollment systems driving many plan enrollments, Taylor says “employers aren't as close to the paperwork at they used to be,” and therefore, it may be harder to catch errors before benefit selections are sent to insurance carriers. Another culprit could be employees not mailing or securely uploading birth certificates in the absence of employer communications about the need to do so, he adds.

As a stand-alone service, PlanSource’s dependent audit fee is based on the number of employees or total number of dependents audited, or a percentage of savings. Clients that are already using the vendor’s platform, which performs ongoing verifications, would face a similar charge, or have it blended into the per-employee-per-month fee. Hodges-Mace charges a setup fee and per-dependent fee based on company size and number of dependents.

These costs certainly can be viewed as a strategic investment. Any savings that a dependent audit generates can always be used to lower employee contributions, fund paid family medical leave or add executive benefits, according to Taylor.

Mindful of runaway healthcare expenses, Simmons says “employers are looking to decrease costs any way they can.” Dependent audits have long served as “a way for broker partners to get their foot in the door with clients because you're going to save money,” she adds.

Hodges-Mace guarantees a 3:1 return on investment for its dependent-verification service, which includes implementation of a spousal exclusion or surcharge. “Along with requesting the required documentation to prove that a dependent is eligible, we also can insert that spousal affidavit and confirm that a spouse doesn't have access to his or her own coverage, or doesn't pay over a certain premium,” says Simmons.

The potential downside of a dependent audit is that it may be viewed as a disruptor to morale or Big-Brother tactic, Taylor says, hastening to add that PlanSource surveys suggest a neutral impact. “There are as many people who say this is great compared to those who say it’s a pain,” he says. “It's one of those checklist items in a compliance checklist that brokers should certainly have in their arsenal.”

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