With health care reform under way and economic pressure bearing down on businesses of all sizes, companies are combing their budgets to cull unnecessary expenses. One area that’s often overlooked is dependent eligibility for health care benefits.
On average, companies can save 3 to 8 percent on their health insurance costs by simply identifying and dropping ineligible participants, says Janet Beckmann, CPA, principal, risk services and data analysis practice leader at Brown Smith Wallace LLC, St. Louis, Mo. The key is to conduct a dependent eligibility verification audit to identify “eligibility creep” that can occur over time.
“Employers of all sizes will be taking a hard look at their health insurance plans and benefits as a result of health care reform. While they’re doing that, it’s a good time to perform an audit to ensure everyone on your plan has proper eligibility,” Beckmann says.
An independent firm can conduct a comprehensive, document-based audit that gathers data from employees to verify eligibility, says Larry Pevnick, CPA, CFF, member in charge of insurance and reinsurance services at Brown Smith Wallace.
“This is an opportunity for businesses to save money without reducing benefits to their employees, so it’s a win-win,” Pevnick says. “They can cut their budgets without touching a health care plan that employees value and need.”
Smart Business spoke with Beckmann and Pevnick about how dependent eligibility audits can result in significant savings for your company.
Why should employers conduct an audit?
Between health care reform and our current economy, employers are working hard to save costs anywhere they can. Some think that the only way to save money is to reduce the benefits they offer employees, but that’s not always the case.
By identifying dependents on their health insurance plans who are not eligible, companies can typically save 3 to 8 percent.
Knowing that business owners are focused on savings, health insurance brokers are also getting on the bandwagon to recommend their clients have a dependent eligibility verification audit performed.
What benefits do businesses realize from a dependent eligibility verification audit?
The biggest benefit is immediate cost savings, which can amount to hundreds of thousands of dollars when companies drop ineligible dependents from their plans. As a result, future claim costs are reduced, as well. Employers also gain a better understanding of their participant plan costs and have an opportunity to clean up their eligibility.
How often should an audit be performed?
That depends on the size and operation of the company. Large employers may want to perform an audit every two to three years. If one has never been performed, now is a great time to start. Audits should be performed more frequently for organizations with many part-time and/or transient workers because they are more likely to find a larger number of dependents who do not belong. Also, perform an audit any time there are major changes in operations, such as following an acquisition or merger, and after layoffs or reorganization.
How should an audit be conducted?
The key is to make sure employees are respected during the process because they will be asked to supply personal and other confidential documents to verify their eligibility for health insurance. Managers and those involved in the audit — which usually includes human resources and/or benefits administrators — should communicate clearly to employees, letting them know that everyone is being asked to furnish such information, no one is being singled out and all information will be kept confidential. Next, a third party that specializes in these audits will begin collecting data, including birth certificates, marriage licenses, tax forms, custody agreements, adoption certificates and other court-related documents that verify a dependent’s eligibility. A call center number gives employees an independent resource for asking questions, which is also a key to minimizing the involvement of management so the process remains unbiased, fair and efficient.
Look for a firm that will make the best use of technology to simplify the process and provide a complete audit. For instance, we perform an employee eligibility verification audit using data analysis tools to compare 100 percent of the employee master data set to eligibility files. Those are also compared to claims to pinpoint the exact dollar amount paid for ineligible participants. Those claim costs typically cannot be recovered. The process is about identifying future cost savings. Quantifying the results is helpful when prioritizing or justifying new processes and procedures for in-house eligibility verification going forward.
When is the best time to perform an audit?
Any time that is not a particularly busy time of year for employees. You may want to consider when open enrollment occurs and how employees will be affected if dependents are identified and dropped from the plan.
What should an organization consider when choosing a service provider to conduct an audit?
First, be sure the firm has the experience to staff the process and its goals are to reduce costs and save time. For instance, rather than paying for postage to send letters of request to employees for gathering documents, can the firm set up a website where employees can log on and see what documents they need to provide? Ask the firm how it will make the process respectful, confidential, efficient and fair. Communication is key during the entire audit process. The firm should be prepared to educate your employees so that everyone is comfortable with the process. The firm should also understand your key objectives, which typically include the importance to the company’s financial well being and maintaining the company’s current level of benefits.
Janet Beckmann, CPA, is principal, risk services and data analysis practice leader at Brown Smith Wallace. Reach her at firstname.lastname@example.org or (314) 983-1254.
Larry Pevnick, CPA, CFF, is member in charge of insurance and reinsurance services. Reach him at email@example.com or (314) 983-1247.