A growing number of employers are embarking on dependent audits to cull ineligible dependents from their health-care rolls in an effort to cut health-care costs, observers say.
Experts say these audits can result in the removal of 5% to 10% of dependents from their rolls, on average, and depending on the particular plan, can save companies hundreds of thousands, if not millions, of dollars.
They also remove potential liability under the Employee Retirement Income Security Act and Sarbanes-Oxley, observers say.
It is important, however, that employers follow up these audits with tightened procedures, such as requiring supporting documentation from employees, to ensure that ineligible dependents no longer wind up on employers’ health-care rolls, observers note .
Frequent instances of ineligible dependents include ex-spouses and children who are too old to qualify for coverage or who are no longer students.
Interest in the audits is “huge,” said Susan Johnson, Atlanta-based senior consultant with Watson Wyatt Worldwide. “It’s absolutely skyrocketed in the last 12 to 18 months.”
The requests are coming not just from the benefits side but from other parts of organizations as well, including finance and sometimes even the executive suite, said Ms. Johnson.
“It was something we needed to do for some time,” said Jane Bruce, human resources director at Nashville, Tenn.-based Vanderbilt University, which culled 6% of dependents from its rolls following last year’s audit. The audit, which was conducted by Chicago-based Aon Consulting, resulted in an estimated savings of more than $650,000.
“We were aware that we needed to raise the awareness of our population, that it’s a cost to the whole of the plan to have people on who aren’t eligible,” said Ms. Bruce.
The audits help cut health-care costs, observers say.
Paige Claus, benefits manager for McLane Co., a convenience store distributor, said her firm saved an estimated $3.5 million in future health-care costs as a result of removing 10% of dependents from its rolls following an audit earlier this year. This “enables us to not have to increase our employee contributions for next year, or make any type of plan design change,” said Ms. Claus.
As a result, the firm has embarked on its open enrollment period “with absolutely no changes to any of our plans, which is really hard to do these days,” said Ms. Claus, whose firm worked with Dallas-based HRAdvance on its audit.
Employers have already exhausted “the more traditional areas of cost savings,” said Mark Rucci, a consultant with Gallagher Benefit Services. “They’ve raised contributions, they’ve restricted benefits, they’ve changed the plan designs,” and they have introduced wellness and disease-management programs.
“This is sort of the last great chance to save money, and the ROI on these things is pretty high. They’re a great source of savings to a health plan for a typical employer,” said Mr. Rucci.
In general, dependent audits can find that 6% to 8% of dependents are ineligible, although the total can reach as high as 15%, said Keith Bird, vice president of sales for Suwanee, Ga.-based Impact Interactive, which conducts audits.
However, it may be hard to pinpoint the savings arising out of these audits immediately, because claims may not necessarily have been filed on behalf of the ineligible dependent, said Ms. Johnson. Without studying claims experience, “it’s hard to put a number on that,” she said.
Audits can help employers avoid potential liability as well. Under ERISA’s exclusive- benefit rule, “it is the plan sponsor’s responsibility to make sure that there are no claims paid for ineligible participants,” and those that are paid “create some exposure to liability on the part of plan sponsors,” said Brennan L. Clipp, senior vice president of sales and marketing with HRAdvance.
Furthermore, publicly held companies are obligated to remove ineligible dependents under Sar-
banes-Oxley, which requires management to sign off on the accuracy of quarterly financial data, Ms. Clipp said. However, “often you don’t see the [chief financial officer] really coordinating with the HR or benefits departments,” which could mean potential exposure under SarbOx, she said.
The best time to conduct an audit is either before or after open enrollment, but not during, observers say.
“It’s a bad idea for the most part” to conduct the audit during open enrollment because there is so much going on then, said Monica Trusley, assistant vice president at Willis of Ohio in Cleveland.
Employers generally offer an amnesty period when they announce an audit, to encourage employees to come forward voluntarily about their ineligible dependents, observers say. Providing that opportunity is “a nice way for the employer to give the benefit of the doubt to the employee and still reap the benefits of the dependents coming off the plan during this amnesty period,” said Ms. Trusley.
Wayne K. Soud Jr., executive vice president with Lockton Cos., said he recommends that as part of the audit, firms require employees to fully document their dependents’ eligibility by providing supporting evidence, including marriage certificates, tax forms and birth certificates.
—Business Insurance Source: http://www.financialweek.com/apps/pbcs.dll/article?AID=/20071105/REG/71101017/1036
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