Hidden costs

In response to current market conditions, many organizations are paying increased attention to carefully managing balance sheets in an effort to remain competitive or, in some cases, viable. Companies are taking steps to free up capital and cut costs while also trying to keep their work forces engaged and productive.

In that climate, many employers are finding that health care programs present a cost reduction opportunity, as it’s their fastest-growing business expense.

One way to reduce those costs is to make sure that you are only paying for dependents who meet the company’s eligibility guidelines for group medical benefits. Conducting a dependent eligibility audit not only helps reduce your overall costs but also avoids shifting those costs to your employees or, for public entities, to taxpayers.

Smart Business spoke with Candice P. Mill, senior vice president with Aon Risk Services and chief operating officer of the Health and Benefits Practice in Pittsburgh, about how to save money by conducting dependent eligibility audits.

Why should employers conduct audits?

For the past 30 years, most plan sponsors operated on the honor system when newly hired employees added dependents to group health coverage and other employee benefits. However, with the financial pressures of our current economy and health care costs continuing to increase at double-digit rates, employers are motivated to look to other options to reduce costs.

A variety of federal compliance requirements, such as Sarbanes-Oxley and ERISA, have also prompted employers to conduct audits on dependents.

What are the potential savings in health care plan costs as a result of conducting a dependent eligibility audit?

On average, each dependent costs an employer $3,400 annually, and employers who conduct audits typically find 4 percent to 6 percent of dependents who are not eligible for benefits.

Ineligible dependents cost employers 5 percent to 10 percent more in dependent health care costs, and companies report a return on investment averaging from 10-to-1 to 25-to-1 or more.

While the audit itself is a one-time opportunity to voluntarily remove dependents who should not be covered under the medical plan and realize savings within four to six months, it should also be a natural part of an organization’s health care strategy. By implementing a long-term plan, employers can make sure proper controls are in place for future new hires, life events and annual enrollments to prevent the buildup of ineligible participants. These controls can ensure a maximum return on the organization’s benefits investment and help sustain long-term savings.