How auditing your health plan can control spending and reduce premiums

Brett Vogelsberger, Senior Account Executive, Neace Lukens

Jamie Debenham, Vice President, Neace Lukens

If you haven’t done a dependent eligibility audit of your health insurance plan recently, you may be paying for benefits for people who don’t belong on the plan.

“A dependent eligibility audit provides an inspection of an employer’s health and wellness plan to ensure that dependents who are enrolled in the plan are actually eligible to be there,” says Jamie Debenham, vice president of Neace Lukens.

While some of those people may be on the plan as an oversight, others may be intentionally enrolled, and that could be costing you money, adds Brett Vogelsberger, senior account executive of Neace Lukens.

“If an ineligible dependent is intentionally enrolled, it is probably because that person needs care, and that could increase your costs,” says Vogelsberger.

Smart Business spoke with Vogelsberger and Debenham about how conducting a dependent eligibility audit can help control wasteful spending and potentially reduce your premiums.

What type of companies can benefit from performing this kind of audit?

Generally, the companies that can benefit most are those that have more than 100 employees. But not all 100-employee-plus companies would benefit if they have mostly single employees with single coverage.

Employers that have a lot of employees with family dependent coverage are most likely to benefit from an audit. In those larger employer groups, it’s a fairly frequent occurrence that there is someone on the policy who isn’t eligible to be there.

How does a company begin the audit process?

The first step is to notify employees 30 to 60 days beforehand that you are going to do a dependent eligibility audit and give them the opportunity to voluntarily terminate ineligible dependents. This provides an amnesty period, without penalty, for employees to come forward and remove that ineligible person.

Next, identify a firm that has experience with audits. The firm will send a notification to your employees who have dependents on their coverage, requesting information. If the dependent is a spouse, the notification will ask for a federal tax form filed within the last year that shows both the employee and the spouse on it.

If there are covered children on the plan, the notification will request a birth certificate and a copy of a federal tax return.

If applicable, the employee will also need to submit a divorce decree stating that he or she is required by the courts to provide coverage to a child who is not residing in the home.

Getting the documents you need can be time-consuming, both because employees are reluctant to provide them and because they forget. You should allow for at least 90 days to complete the process.

How can you overcome employees’ resistance to providing personal information?

You need to assure them that everything is HIPAA compliant and that the information will only be used for audit purposes. You can also provide them with a secure e-mail address and ask them to white out financial information, Social Security numbers and other sensitive information from the documents.

But even if an employee is uncomfortable, he or she cannot refuse to submit the required documents. Because the plan is sponsored by the employer, the employer has the right to legally dismiss the employee if the enrollment application was fraudulent  or to remove the dependents from the plan for noncompliance with the documentation  requirement.

From an initial enrollment perspective, employers should ask for specific documents up front in order to prevent ineligible employees from being enrolled in the first place, especially when enrolling dependents.

What do you do if you find ineligible dependents on the plan?

The employee would be notified that the dependent will be terminated as of an effective date in the future. Before health care reform, those terminations were backdated. That has become more difficult to do because of the new rescission laws, which do not allow canceling the contract as though it never existed.

How can doing an audit benefit a company?

It will certainly benefit on premiums and also from the performance of the health plan as a whole. You benefit from claims not filed by an ineligible dependent, because generally, someone who is deliberately on the plan is going to be using the plan and creating claims and ultimately spending a lot of money. In addition, over a long period of time, because the claims would be coming down, that may ultimately result in better rates.

Employees may also benefit. Most companies ask employees to pay a portion of their premium, and if getting ineligible dependents off the plan improves premiums, that benefit is going to trickle down to them.

Some employers may be reluctant to pursue an audit because they don’t want conflict, especially if they suspect that a highly paid or key employee may have an ineligible dependent on the plan. But not removing that person could be a costly mistake.

What would you say to business leaders who say the process is expensive and time-consuming?

I would tell them about the potential savings, because that is going to directly hit their pocketbook. The audit may initially seem expensive, but not compared with the savings that you will get from finding ineligible employees. There are quite a lot of dollars involved, and a significant amount can be saved as the result of performing a dependent eligibility audit.

How often should an audit be performed?

For a company with high turnover, it should be done every year, or at least every other year. For a very stable company, once you’ve done it once, you may be able to wait five or six years before doing it again.

Jamie Debenham is a vice president with Neace Lukens. Reach him at [email protected] or (216) 446-3312.  Brett Vogelsberger is a senior account executive with Neace Lukens. Reach him at [email protected] or (216) 446-3304.