Employers cut costs with dependent audits [ Link to Original Article ]
Reviews halt cover of ineligible plan members

by JUDY GREENWALD
Published on Oct. 29, 2007

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 culling, on average, 5% to 10% of ineligible dependents from their rolls, and depending on the particular plan, result in hundreds of thousands, if not millions, of dollars in savings.

They also remove potential liability under the Employee Retirement Income Security Act and the Sarbanes-Oxley Act, observers say.

It is important, though, that employers follow up these audits with tightened procedures, such as requiring supporting documentation from employees, to ensure ineligible dependents no longer wind up back 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 are no longer students.

Interest in the audits is "huge, in a word," said Susan Johnson, Atlanta-based senior consultant with Watson Wyatt Worldwide. "It's absolutely skyrocketed in the last year to 18 months."
"The requests are coming not just from the benefits side," but from different 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 its 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 Carrollton, Texas-based McLane Cos., a convenience store distributor, says 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 its 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 Princeton, N.J.-based consultant with Gallagher Benefit Services Inc. "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, greatest 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, vp of sales for Suwanee, Ga.-based Impact Interactive, which conducts audits.

It may be hard to precisely pinpoint the savings arising out of these audits immediately, though, 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. In some cases, employers will have to wait a year to see if claims costs decline.

Audits can help employers avoid potential liability as well, observers say. 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 do "create some exposure to liability on the part of plan sponsors," said Brennan L. Clipp, senior vp of sales and marketing, with HRAdvance.
Furthermore, publicly held employers are obligated to remove ineligible dependents under the Sarbanes-Oxley Act, which requires management to sign off on their quarterly data's financial accuracy, said Ms. Clipp. However, "a lot of times you don't see the (chief financial officer) really coordinating with the HR or benefits department," which could mean potential exposure under Sarbanes-Oxley, 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 vp at Willis of Ohio Inc. in Cleveland.
Employers generally offer an amnesty period when they announce an audit for employees in order to encourage them to voluntarily come forward about their ineligible dependents, observers say. Providing that opportunity is "a nice way for the employer to give that 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 vp with Lockton Cos. L.L.C. in Atlanta, said he recommends that as part of the audit process firms require employees to fully document their dependents' eligibility by providing supporting evidence, including marriage certificates, tax forms and birth certificates for those eligible under the plan. Employers will typically offer an appeals process in cases where dependents are removed, he said.

Generally, employers simply remove ineligible dependents from the plan with no further repercussions when employees either do not respond to an audit, or indicate they have ineligible dependents. In some cases, though, employers will pursue repayment of claims and payment of additional premium and, in rare instances, terminate the employee, observers say.
Ford Motor Co., for instance, which has dropped 80,000 ineligible dependents from its rolls since it began these audits in 2000, has had two amnesty periods, but now seeks reimbursement for benefit overpayments from employees with ineligible dependents, said a spokeswoman for the Dearborn, Mich.-based auto maker.