In response to current economic 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 this climate, many employers are finding that health care programs present a cost reduction opportunity, as it’s one of their fastest-growing business expenses.
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 Mark Heatley, vice president with Aon Consulting in St. Louis, about how to save money by conducting dependent eligibility audits.
Why should employers conduct audits?
For many 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?
By removing ineligible dependents (typically 4 to 8 percent of enrolled dependents), there is the potential for employers to achieve cost savings of 2 to 10 percent of their spending on dependents.
The audit itself is not just a one-time opportunity to remove dependents that should not be covered under the medical plan but should be a part of an organization’s ongoing 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.
What are the reasons that dependents are found to be ineligible?
A variety of factors contributes to ineligible dependents covered on the employer medical plan, but the most common reasons are inconsistent or a lack of internal eligibility processes and procedures; poor communication about eligibility requirements; multiple acquisitions and divestitures, leading to multiple plans and eligibility criteria; and a shortage of internal HR resources to manage and/or conduct periodic audits of dependent eligibility.
Consequently, dependents who don’t meet the eligibility requirements set forth by the plan sponsors include overage dependents, stepchildren following a divorce of the natural parent, extended family dependents under no legal guardianship and unmarried partners with no recognized relationship under the plan or with children of live-in partners with no legal relationship.
Do the recent changes mandated by health care reform legislation eliminate the need to conduct a dependent eligibility audit?
There is still value in conducting audits because many plans will be required to cover dependent children longer than they previously would have. As a result, the need to make sure that the plan is only covering those dependents who are truly eligible has increased.
What are the steps to conducting an audit?
First, get executive management buy-in. This is critical. Presenting the facts about how HR is helping to drive cost reductions, improve legal compliance and promote operational excellence establishes the business case for investing in an audit and helps to advance the brand perception of the internal HR team.
Second, arrange options for those removed from the corporate plan. The most successful tactic to combat negative perceptions of an audit is to create coverage options for ineligible dependents who are removed.
You also need to overcommunicate. Employers should communicate the mutual benefits of controlling health care costs for employees and the organization, such as money to invest in research and development, training, etc. The communication campaign should contain a personalized notification letter that includes:
- Explanations of the purpose of the audit, guidelines to protect confidentiality, the name and experience of the company hired to conduct the audit, and information about the call center to answer questions about the audit.
- Information about which dependents are legally eligible and a list of the individuals currently enrolled under the employee’s coverage.
- A list of valid documentation needed to verify all dependents, such as a birth or adoption certificate, marriage license, etc.
- Finally, companies should involve a third party. Using a third party whose core business is the administration of eligibility can ensure that the process includes best practices (such as offering health options for those removed) and adds a layer between you and your employees that can help allay concerns about confronting employees about the legitimacy of their dependents.
Mark Heatley is vice president with Aon Consulting in St. Louis. Reach him at (314) 719-3802 or at firstname.lastname@example.org.