Health insurance audits aimed at dependents
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This spring, suburban teachers and support staff affiliated with the Allegheny County Schools Health Insurance Consortium received letters explaining they were about to be conscripted into an effort "aimed at controlling the rising cost of health care," called a dependent eligibility audit.
If they carried dependents on their health plan -- that is, a spouse, children or both -- they'd need to fill out verification forms and furnish some combination of tax returns, marriage certificates, mortgage statements, and copies of birth certificates so those dependents would be permitted to remain covered beyond June 1.
Those who didn't respond, or whose dependents were deemed ineligible, were at risk of being booted from the plan.
It may sound burdensome at best and vindictive at worst, but as many as one in 10 health insurance dependents, by some industry estimates, may be ineligible for the company health benefits they are receiving.
Those unknowing -- or, in some cases, knowing -- freeloaders drive up the cost of providing care for employers, and can likewise drive up the cost of premiums and co-pays for the rest of the beneficiaries.
That's why more employers and health care buyers, looking to trim health costs where they can, are turning to dependent eligibility verification audits. And while the audits used to be the province of large and institutional employers, today, smaller businesses are able to use them, too.
Employers like the audits because they are often able to help save on health care costs overnight without reducing benefit levels for employees. One in-depth study by the University of Colorado showed the return on investment for its own audit was 13 to 1, in the first year.
But employees targeted by the audits aren't always fans.
"It creates a lot of anxiety," said Richard Kolodziejski, legislative affairs director of the Minnesota Association of Professional Employees, whose 13,000-member union is now in the middle of a 130,000-employee audit covering all of the state's employees.
The audits, which can be carried out in-house but are more often conducted by a third-party human resources consultant, generally require an employee to furnish copies of documents, statements and certificates to prove that people being claimed as dependents are, in fact, eligible.
"Not everybody has a birth certificate," Mr. Kolodziejski said. "Not everybody has a marriage certificate.
"Our own president [of the association] was married in Canada," he said, meaning that the marriage license was more difficult to obtain. For the percentage of people who lack these documents, recovering a copy from state or county agencies can sometimes cost money.
Mr. Kolodziejski himself said the process was somewhat onerous -- divorced, he carries his children on his health plan but his ex-wife kept all of the kids' paperwork.
Still, for employers, the prospect of savings is too tempting to pass up.
That's why the Allegheny County Schools Health Insurance Consortium is reviewing the eligibility of some 14,000 dependents, said Chuck Streiff, solicitor for the consortium.
In April, a consultant hired by the consortium sent out letters to all health plan beneficiaries, asking them to prove eligibility by the end of May. The process, appeals and all, should be completed by August.
This audit, unlike the one being carried out in Minnesota, has met with little resistance from the teachers filling out the forms.
"If there was a problem, we'd know about it," said Butch Santicola, a spokesman with the Pennsylvania State Education Association, a statewide bargaining organization and lobbying group that represents many of the teachers being audited. "We haven't had one complaint."
That may be because the reviews have become more user-friendly, after a few years of tinkering with amnesty periods and outreach efforts. For that reason and others, the audits are again in vogue, according to those in the industry, after a few flat years.
In 2009 and 2010, "We saw a lot of folks hesitating on these types of projects," said Judy Felhaber, a principal at Buck Consultants and a national practice leader for the company's audit and reporting service division.
Much of that hesitance derived from the provision of the 2010 federal health care overhaul -- as well as similar state laws -- that allowed college graduates to stay on their parents' health plan until the age of 26.
Post-college dependents were among those most routinely removed from a health plan after an audit, Ms. Felhaber said. As of January 2011, they're allowed to remain on board (unless they have a job of their own that offers coverage).
Another group commonly culled from the list of dependents is former spouses. Generally, about 5 percent of spouses will be removed from a company health plan following an audit, she said.
Domestic partners -- typically gay partners -- and children who are related to the main policyholder but aren't biological offspring (such as nieces, nephews or grandchildren) are also commonly weeded out.
Ceridian Benefits Services, a Minnesota-based human resources and benefits management company, claims ineligible dependents cost American businesses more than $20 billion a year.
Eligibility audits will remove 3 percent to 10 percent of those ineligible dependents from a health plan, saving the employer, on average, more than $4,000 per person per year, according to Ceridian. Another consulting company, Mercer, puts the cost of each dependent between $2,100 and $3,000, and says between 2.5 and 6.5 percent of dependents will be dropped following an audit.
Third-party consultants charge a fee for the audit -- less than $20,000 for a small employer and several hundred thousand, or more, for a large one.
Ms. Felhaber said that, for a larger employer group, only half-a-percent of dependents have to be culled in order for the audit to pay for itself.
Typically, though, an audit nets far more, according to those in the industry. A 2010 audit carried out by Florida's Palm Beach County, for example, booted 325 beneficiaries from a list of about 5,100 dependents, or about 6 percent of the dependents, said Nancy Bolton, the county's risk management director.
Of those 325, most were divorced spouses, Ms. Bolton said, and only three were truly egregious cases of outright fraud. "We didn't find anything really sexy," she said, but the estimated annual savings -- $1.3 million, against the $42,000 one-time audit cost -- were pretty handsome.
First Published June 27, 2012 12:00 am