Companies can cut healthcare expenses, offset future cost increases and realize direct bottom-line savings with dependent eligibility audits, reveals the co-founder of a leading healthcare cost containment solutions provider. Such verification not only delivers immediate savings. It has also improved the employer playing field, he reports.
Healthcare provision costs are expected to surge another nine percent next year, according to PricewaterhouseCoopers. To mitigate this increase, many self-funded companies are looking at all options. Unfortunately, most of the talk about healthcare reform focuses on expanding coverage and not on reducing costs. This leaves employers to figure out how to manage the added expense to remain competitive in the market – both in their employee recruiting/retention efforts and with their product/service offerings.
The most effective and least burdensome cost avoidance measure available is to stop covering ineligible individuals. Before compromising benefit levels or saddling employees with higher contributions and additional out-of-pocket expenses, businesses should first consider comprehensive dependent eligibility verification (DEV), which can immediately avoid plan costs by as much as six percent. Not only will there be a significant savings in the initial year, but results can continue to save a company money down the road if verification is performed for new participants at the time of initial enrollment.
Reducing the Cost Burden
Healthcare coverage is a significant factor in the cost structure of any company, particularly those in the highly competitive, global manufacturing business. Faced with foreign competition supported by state-run healthcare plans and the demand for quality products at the lowest price, American manufacturers must make the control of healthcare expenses a primary concern.
It can be surprisingly easy for ineligible dependents to find their way onto your company’s health insurance plan and remain there for a long time. Most companies without a comprehensive verification process rely on limited verification or the oft-adopted honor system. By asking employees to verify their dependents, businesses make it relatively simple for ineligible dependents to slip into the system, either intentionally or unintentionally. In some cases, unclear eligibility requirements confuse employees, who inadvertently add ineligible dependents, not realizing that these dependents do not qualify.
In a typical DEV audit, as many as 10 percent of covered dependents may be found ineligible. These individuals place an unnecessary cost burden on the company and its eligible employees/dependents, often driving up costs for the insurer, as well as premiums, out-of-pocket expenses and co-payments for those legitimately eligible for coverage.
Who is Ineligible?
While every insurer may have specific rules governing eligibility, there are typically three classes of ineligible dependents found most often during a DEV audit. These include:
- Children under the age of 19 who do not meet the relationship requirements defined by the plan or by law. This might be former step-children, extended family members, or those for whom the employee is not responsible for providing coverage.
- Adult children (ages 19-25) who join the plan under the new reform laws that enable this, but who are not actually related to the employee. For example, the child’s spouse might try to enroll by appearing as another adult child of the employee because they share the same last name.
- Former spouses who remain on the plan after a divorce. Ineligible former spouses or individuals who never qualified as a spouse can account for as much as 50 to 60 percent of the cost savings in a DEV audit, even though they represent only about 35 percent of ineligible dependents discovered.
With the average annual benefits outlay of $3,000 per year per dependent, the savings realized by eliminating ineligibles can quickly add up. In fact, in a recent DEV audit, one major multinational manufacturer of consumer safety products identified more than 2,700 ineligible dependents on its plan in just three months. By eliminating those ineligibles, the company saved approximately $11.5 million in the first year alone – savings that went directly to the bottom line.
While these results may seem quite extraordinary, they are not atypical – and the benefits of a DEV continue to pay dividends beyond the initial savings. Once a baseline of eligible dependents has been established through a comprehensive audit, a program of ongoing verification can be implemented to provide long-term cost savings. By verifying eligibility for newly hired employees with dependents—and doing so each year after annual enrollment for new or previously ineligible dependents or any time family status changes where dependents are added to the coverage roster—proactive employers can avoid spending thousands, perhaps even millions, of dollars to cover ineligible dependents. In most cases, such expenses are irrecoverable.
Ensuring Accuracy, Reducing Friction
Among the biggest concerns most employers have about conducting a DEV audit are the cost/time burden placed on their HR team and the level of grief they’ll receive from employees. It’s important to remember that controlling unnecessary spending is part of a self-insurer’s fiduciary responsibility. Potentially, millions of dollars are on the line. The plan must meet the obligation to participants and shareholders. That obligation involves taking every reasonable measure to uphold that responsibility. In most cases, employees will understand this rationale, as long as it’s clearly explained and so that they can see that the audit will benefit them in the long run.
To reduce the internal HR burden and ensure as smooth a process as possible, many companies opt to enlist the services of an outside auditing firm. An experienced external DEV auditor will not only provide for a more efficient system, but may also help to reduce employee friction surrounding the process. Fairness and consistency are crucial. An objective outside firm with the proper tools can provide this and help to eliminate the appearance of employee targeting or suspicion.
The audit process itself should minimize employee disruption as much as possible and deploy carefully crafted and personalized communications elements and support systems – including mail, web and telephone support. These will ensure timely response and accuracy, as well as bolster positive employee perception of the audit.
With a significant amount of uncertainty still surrounding the government’s healthcare reform, and the biggest impact still to come in 2014, self-funded manufacturers are already working to adapt their programs and expand coverage. As they face additional cost increases on the horizon, now is the time for these manufacturers to look for savings. A DEV audit can be a win-win situation for all parties – the employer and employees. Not only does eliminating ineligibles offer a direct, immediate and often substantial reduction in plan costs, but it also helps keep costs lower over the long term, for both the plan and participants.
The savings generated as a result of a DEV audit go directly to the bottom line and can be used to improve your company’s competitive positioning in the marketplace, make capital improvements or even expand capacity. Frankly, to do nothing and knowingly keep ineligible dependents on the company plan only serves to limit growth and opportunities. Fortunately, many companies have realized this and already employ effective verification activities to improve or correct their playing field.
Michael Smith is president and co-founder of ConSova Corporation, the leading provider of healthcare cost-containment solutions. Before establishing ConSova, Smith held a variety of health and welfare benefits positions, including the vice presidency at Clark Consulting and Finance and Labor Relations for US Airways. A certified public accountant, Smith also worked with Arthur Andersen’s Business Process Risk Consulting and Human Capital Practice, developing and providing health care cost containment solutions. For more information on ConSova, visit www.consova.com.