Dependent audits appear to be one of those “too good to be true” ways to contain healthcare costs. There’s a lot of industry buzz about ROI, amnesty periods and dependent documentation, but that’s it. As you read through our secrets, think about how these answers can help your plan optimize success!
Many questions abound such as: what size employer benefits? Can insured plans benefit? Are all dependent audits created equal? Why would claims data be used to enable an audit? What are the risks of not conducting a dependent audit? Why audits should be outsourced? And lastly, how much does it cost?
1. What size plans can benefit from dependent audits? In our experience, plans with as few as 150 employees with dependents can benefit from conducting an audit. To illustrate, we recently conducted an audit of a group with 200 employees with dependents. One of the ineligible dependents was a 32 year-old child (children maxed out at 25) that was erroneously receiving approximately $40,000 annually in care. These are even more common in larger plans. Regardless of the plan size, on average we consistently identify between 5% and 15% ineligible dependents.
2. Can insured plans benefit from dependent audits? Yes, however before conducting an audit, the savings should be discussed with the underwriter of the plan to confirm the formula that will be used to compute savings. For example, only an audit that identifies greater than x% of confirmed ineligibles could have an impact on premium reductions.
3. Isn’t my TPA, payor, broker, or benefits administrator already doing this? No. While they may consider doing this for an additional fee, be wary as this is not their core competency. For example, when approached with the idea of performing a dependent audit their immediate reaction was that either their TPA or broker was doing this. Unfortunately, that was not the case and the client unknowingly leaked hundreds of thousands of dollars.
4. What role do medical and Rx claims have in a dependent audit? Historical claims are attached to ineligibles to compute the actual savings. As your Finance and auditing departments will tell you, this is more credible that a per capita savings approach. For example, when a low dollar, ineligible dependent is removed the per capita savings method significantly overstates the savings. On the contrary, one of our clients removed a high dollar ineligible dependent that consumed more than $75,000 in a particular plan year.
5. Why is it that only claims data can be used for computing a legitimate ROI? Historical claims data is a predictor of future savings. For example, if an ineligible dependent that is taking a maintenance (daily) medication is removed, we know that this person would have continued to take that particular maintenance medication for the indefinite future.
6. What are the risks of not performing a dependent audit? Not doing a dependent audit poses numerous, serious risks. These include: 1) Fiduciary responsibility, 2) ERISA compliance (Benefits Exclusion Rule – only the plan assets can be used for eligible members), 3) Stop loss (yes, reinsurance companies won’t pay the claim if the dependent is ineligible), 4) Sarbanes-Oxley, 5) Profit erosion, 6) Job loss.
7. Why should dependent audits be outsourced? Dependent auditing is a specialty business that requires a deep and wide technical knowledge often exceeding the in-house knowledge and experience. For example, a high technology company recently conducted a dependent audit on its own. Less than 1% of the dependents were removed through this process primarily because the process fell apart. The client than reached out to HR Best Practices to “finish the job.” Moreover, HR should focus on strategic, value-add activities and not get into potential conflicts with employees regarding source document validity.
8. How much does it cost to perform a dependent audit? The real question is what does it cost not to perform a dependent audit? To that end, plans can save at least 3% of its annual health plan costs often resulting in 100% plus returns (and in some cases 1,000%).
9. Does HR Best Practices conduct dependent audits on a contingency basis? Yes HR Best Practices provides contingency services in two ways. 1) On a percentage of claims basis or 2) On a per confirmed ineligible basis).
10. What are the advantages to a plan that has recently conducted a dependent audit? The data gleaned from a dependent audit can be highly leveraged into additional cost savings. For example, employers can develop profiles of known ineligibles and can then legally use this information as an input to a more focused, less invasive future audit.
As illustrated, dependent eligibility audits are the proverbial “low hanging fruit” of healthcare cost containment. The data is available and by this point in time, most employees have either heard about or read about dependent audits in popular newspapers and magazines ranging from The Wall Street Journal to Business Week. Isn’t it time for you to propose this to your management team before your VP HR, CFO, COO or CEO demands it?
Contact us at 201.891.8010 for more information today!
