DEVA_WP_mc_final_2.0
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This document discusses dependent eligibility audits, which involve third-party vendors verifying that dependents enrolled in an employer's health plan meet the plan's eligibility requirements. It covers: 1) Why employers conduct these audits, which is typically to identify ineligible dependents and save costs while preserving benefits. 2) The typical four stages of an audit: planning, verification where documentation is requested, a grace period, and follow through of removing ineligible dependents. 3) Key factors that impact the potential savings from an audit, such as industry, response rate, communications quality, and timeframe. On average, audits find 8% of dependents to be ineligible, saving $3,000
DEVA_WP_mc_final_2.0
- 1. 1 UNDERSTANDING DEPENDENT ELIGIBILITY AUDITS STRAIGHT TO THE POINT
- 3. Contents Background...................................................................................................... .4 Why Conduct a Depedent Eligibility Audit?.................................................... .5 Four Stages of a Dependent Eligibility Audit................................................... .6 Preparing for a Dependent Eligibility Audit..................................................... 8 Factors Impacting Dependent Eligibility Audit Savings................................... .8 Case Study: TTX.............................................................................................. 10 Considerations for Selecting the Right Vendor............................................... 10 Point of Enrollment: New Developments in Dependent Eligibility Processing................................11 Resources........................................................................................................ 12
- 4. 4 2,000 3,000 6,000 Employees with no Dependents Employees with Dependents Dependents Background A Dependent Eligibility Audit (DEA) is an audit of the dependents currently enrolled on an organization’s health benefit plan. These audits usually consist of a third-party vendor asking employees to provide documentation that proves their relationship to the dependents enrolled on their employer’s health benefit plan. Once documentation has been received, the vendor verifies that the relationship meets the definitions of eligible dependents under plan guidelines. A DEA is normally conducted on spouses, domestic partners, children, or any other dependents included in the summary plan description or other plan documents. It is vitally important that employers understand who is considered a dependent under their plan’s definition and recognize that there may be more than one definition that the audit will need to take into account. If an employer wishes to audit all dependents and has separate benefit plans (HMO vs. PPO vs. EPO, etc.)—or if the employer wishes to audit the dependents enrolled in different medical or prescription plans—the employer must review the specific definitions of dependent within each of these plans. If the definitions vary and require specific auditing, it will likely impact the scope and cost of the audit. The graph below shows the average number of employees with dependents, and the average number of dependents enrolled per employee. Applying these averages to an employer’s own plan can help determine the impact an audit may have on the organization. 8% - is the typical ineligible rate of dependents audited $3,000 per year - Average cost per member for Medical RX Average statistics for a plan with 5,000 employees: Approximate savings for an employer with 5,000 employees = $1,440,000
- 5. 5 Why Conduct a Dependent Eligibility Audit? Based on reviewing over three million dependents over the course of more than 800 dependent eligibility audits, HMS has identified the most common reasons why employers conduct a DEA: To preserve health benefits without raising an employee’s out-of-pocket costs To identify savings opportunities To enhance the employer’s fiduciary responsibility under ERISA To validate information on file to process health benefits accurately and in accordance with benefit designs To validate the current process of enrolling, re-enrolling, and processing family status changes
- 6. 6 Dependent Eligibility Audits at a Glance Four Stages of a Dependent Eligibility Audit 1. The Planning Stage: The employer will need between 20 and 45 days to talk about the process, educate the right people (Human Resources, management, etc.), identify the affected population, discuss timelines, and determine how the organization can maximize returns and minimize employee dissatisfaction. The average time needed is 30 days; however, large, national organizations may require longer for communication and training, and smaller organizations with single benefit plans may be able to complete this phase in less time. Three issues that can slow down the start of an audit: 1. Finalizing communications to employees 2. Finalizing and receiving appropriate data files 3. Finalizing the vendor contract and HIPAA agreement 2. The Verification Period: This period may range from 25 days to over 60 days depending on the vendor, the type of audit selected, and the intent of the organization conducting the audit. During this period, the vendor sends out the communication directly to plan members to notify them about the audit, why the audit is being completed, where to go for additional information, how the process works, what documents are needed, and how to submit documentation. This is the critical phase of the audit. The vendor should work with the organization to ensure that employees have been pre-notified by the organization about the audit and why it is being performed.
- 7. 7 Most common Dependent Eligibility Audit description included in the employer’s initial communication to employees: “In an effort to preserve current employee and family health benefits, we will be conducting a Dependent Eligibility Audit. This audit will ensure that we are covering only those members that meet our eligibility rules under our summary plan description.” 3. Grace Period: The average grace period is 20 days. Once the verification period is over, there is usually a grace period that allows for additional outreach. This period is vital to helping employers maximize the response rate. Organizations should work with their vendor to coordinate emails, phone calls, or any other communication alternatives that will increase responses and reduce appeals at the end of the audit. Once the grace period is completed, it is reasonable to expect that approximately 1.5% of dependents who have been removed will be added back on the plan either because they have located missing documents or have realized the consequences of not responding earlier. 4. The Follow-through: Once the audit is completed the client should receive a file of dependents that may be considered ineligible. Indicators should be included that will notify the client of: those dependents that self-reported and voluntarily noted that they were ineligible; those that partially submitted data but did not fully comply; and those that did not submit any information for consideration during the audit. At this point the employer needs to act to proceed with removing the dependents from the appropriate health plans. We have seen numerous times where an employer only terminates the voluntarily removed dependents. Others have noted that by only removing these identified dependents the wrong message is sent to employees that future audits may not need to be responded to. Additionally, as we surveyed past clients that have conducted these audits, we have found only 1.5% of dependents come back on the plan within 60- days of the audit being completed. Since we are seeing approximately 5% of dependents not responding, you may deduce from this that approximately 3.5% of these dependents did not respond because they identified themselves as being ineligible, but chose not to respond to the audit. Once an employer processes the termination transactions and notifies the employees and their dependents of their removal there will likely be appeals through management and human resources to consider the dependents to be put back on the plan. Vendors that have been doing these types of Dependent Audits for a long time should offer a service once the terminations are completed that can handle these post-termination appeals as an option to the original audit (called an Appeals Period or Reinstatement Period). This is usually an additional 30-day period after the terminations have been communicated and may or may not run concurrent with the original audit.
- 8. 8 Preparing for a Dependent Eligibility Audit Once a vendor has been selected, the following steps can help the employer prepare for the audit: Educate management about the objectives of the audit and how they can help ensure the success of the audit. Educate the Human Resources team and ensure proper protocols are in place. Even though the vendor usually handles the majority of the customer service function, the employer will likely receive questions, complaints, and appeals that will need to be addressed by the HR team. Work with the vendor on all communications to plan members including advance notification of the upcoming audit. This pre-notification may take the form of a company-wide newsletter article, an update on the company intranet, a company-wide email, or other types of media (e.g., video message, phone push) that reaches as many employees as possible. A clear and concise communication will help improve the response rate, decrease member complaints, and decrease HR transactions. Notify the vendor of any security protocols, vendor requirements, etc., as soon as possible so as not to delay the process. Be prepared to follow the agreed upon timeline. Interrupting the timeline may impact the vendor’s resources including the call center, auditors, or project management support. Such interruptions could negatively impact quality and overall results. Factors Impacting Dependent Eligibility Audit Savings HMS has found that, on average, 8.1% of dependents enrolled in plans are ineligible for coverage and should be removed. Lastly, there will be a small percentage of dependents that are removed who will continue to send paperwork to the vendor hired to conduct the audit, even after the audit has concluded. An employer should be cautious to work with a vendor that is notifying the member that they are not going to act on the document and point them appropriately to their Human Resources department.
- 9. 9 2. Process: The audit process will impact the results, including the following: The number of communications to employees should be appropriate for the length of the audit. Too few will result in a poor response rate and too many will result in diminished returns and may irritate employees. At minimum, the employer should send at least three communications to employees to achieve a reasonable response rate (above 93%). Any more than four communications will not likely have a meaningful impact. 3. Response Rate: A fundamental element of a dependent eligibility audit is the percentage of employees that has responded to an audit with documentation, whether complete or not. If there is a low response rate (for example, 80%), the employer will also experience a high appeal and complaint rate by employees whose dependents have been removed from the benefit plan. The goal is to achieve a high response rate—above 95%—so that appeals and complaints are minimized. Additionally, the higher the response rate, the more credible the final projected savings will be, because it will include a lower number of non-responders. NOTE: Some vendors advertise free Dependent Eligibility Audits or very high potential savings. These offers are often based on a low response rate. 4. Timeframe: The timeframe of a dependent eligibility audit could impact the results as well as the cost. If not enough time is allowed for the audit, employers will likely experience a low response rate and a high level of complaints and costly appeals. If the process is too long, an employer may be paying for unnecessary elements and may experience employee irritation. Of course, the amount of money an organization will actually save by conducting a dependent eligibility audit depends on a number of factors: 1. Industry: The industry the employer is a part of will likely impact the number of dependents enrolled in the plan, as well as the cost per member count. Typically, industries and employers with a higher degree of turnover have a greater potential for savings. Once the grace period is completed, it is reasonable to expect that approximately 1.5% of dependents who have been removed will be added back on the plan either because they have located missing documents or have realized the consequences of not responding earlier. A technology company may have a smaller percentage of employees with dependents because the average age of their workforce tends to be lower. Unions and federal employers tend to have a higher dependent ratio due to expanded eligibility rules, so they often have a higher dependent count per employee (2.5:1 vs. 2:1), which will impact the savings opportunity.
- 10. 10 Case Study: TTX Chicago-based TTX, the leading provider of railcars and related freight car and freight rail management services in North America, selected HMS to conduct a DEA of the 1,932 dependents enrolled in their health plan. Over the course of the review, 59 dependents (or 3.05%) were identified as ineligible under the plan guidelines, resulting in a cost savings of $345,504 for the first year and a return on investment of 1,488%. Based on these results, TTX was able to effect changes in its eligibility verification process with its enrollment vendor, thus increasing the ease and efficiency of the process going forward. As part of its ongoing efforts to reduce healthcare spending, TTX plans follow-up reviews every three to five years. Considerations for Selecting the Right Vendor The Dependent Eligibility Audit process is complex and can have a significant impact on employees’ lives as well as their opinion of the company. Therefore, it is important to select a vendor who understands the organization’s unique needs. While cost and quality are among the most obvious traits to look for when selecting a DEA vendor, the key consideration should be the value the vendor brings to the engagement, and how they measure that. Other considerations include: Experience. The DEA market has been growing rapidly. Make sure the vendor is experienced and has references to validate their results. Working with vendors who shortcut the process or perform the audit for lower cost may result in higher member dissatisfaction and a lower response rate. Always seek a vendor with proven results and flexible processes and assets. Process. Be sure to discuss timeline, communication, and employee education, as these can all impact response rates. Total TTX Employees (with Dependents) # Dependents Reviewed % Identified Ineligible # Found Eligible Annual Savings ROI 849 1,932 3.05% 59 $345,504 1,488% 5. Communication: Clarity of communications can impact the results of an audit. Include the organization’s logo on the mailing envelopes to ensure that employees read the communication. This will increase the response rate. Give employees a variety of ways to respond to the audit to increase the response rate.
- 11. 11 Priorities. Consider a vendor that focuses on audits as its primary service and not an add-on service. Other vendors may perform audits as a way to offer members other benefits, such as volunteer benefits. This may be more disruptive and take away from the core efforts of conducting a high quality audit with minimum employee engagement. Flexibility. Find out if the vendor offers choices. Some vendors offer many types of products to suit clients’ specific needs, while others promote a one-size-fits-all approach. Likewise, some may offer on-going audits or only a point-of-enrollment process. Systems and Document Submission. Some vendors offer robust systems where employers and employees can track documents and identify resources, whereas others may only provide a phone number. Similarly, some vendors only allow employees to submit data via fax, while others allow for mailing, faxing, and even uploading to an on-line system. Timing. It is common for employers to want to perform these types of audits right after open enrollment. This approach can be valuable, as new employees and family status changes may be completed during this period. However, there is also evidence that performing these audits outside of the open enrollment period will maximize immediate savings in addition to reducing the number of ineligible transactions that occur during open enrollment. Check References. Nothing speaks louder than a positive or negative review. Keep in mind that vendors will likely only provide positive references, so be prepared to ask targeted questions about the process, including what their typical response rate is and how many communications were used. Exceptions. Sometimes employers wish to make exceptions to plan definitions and should be ready to discuss these with the vendor. They may include: choosing to handle executives in a special way; excluding dependents who have previously been audited internally or externally; etc. Internal Resources. Know the resources that will be needed internally for a successful audit. Most audits will require planning and between 10-20 hours of work from Human Resources staff. The complexity and resources required to conduct a DEA are greater for larger organizations, so a good rule of thumb for organizations with less than 50,000 members is to plan for five hours of work for every 2,500 members covered. In addition to the HR team, employers will need to involve their IT team or enrollment vendor to obtain the necessary data files, as well as the Legal team to review the contract. Outsourcing. Some vendors outsource portions of the audit to other third party vendors or use overseas entities. Transferring control of data may be cause for concern due to HIPAA regulations. A one-stop-shop vendor may be the better option.
- 12. 12 Point of Enrollment: New Developments in Dependent Eligibility Processing Using a $3,000/member-per-year average savings model, each ineligible member costs an organization approximately $250 a month. Employers and brokers regularly indicate that they would like to prevent unnecessary spending by auditing their plans more frequently to ensure that ineligible dependents do not continue to get added to their plan. To meet this need, enrollment companies and some vendors have created Point-of-Enrollment solutions to audit all new dependents at the time of enrollment. The enrollment transaction triggers an integrated audit approach wherein documents are requested and eligibility is verified before the dependent is enrolled in the plan. This Point-of-Enrollment process helps minimize the number of ineligible dependents that are added to the plan, but does not eliminate the need to conduct a full audit, as other transactions are regularly occurring that might not be identified unless a full audit is performed.
- 13. 13 Resources www.employeraudits.com www.dependentcheck.com www.hms.com www.businessgrouphealth.org National Business Group on Health 2013 Survey Lists Dependent Eligibility Audits as #9 on “Steps to Control Healthcare Spend”
- 14. 14 About the Authors Greg Fischer Vice President, HMS Employer Solutions As Vice President of HMS Employer Solutions, Greg Fischer is responsible for cost containment solutions for employers of all sizes, including Dependent Eligibility Verification Audits. He oversees audit quality as well as the resources and revenues associated with performing these services. Mr. Fischer has over 17 years of experience in the health insurance industry, working with Governmental, Commercial and Taft- Hartley self-insured and fully-insured plans. Prior to joining HMS, he was President of a third party administrator, Vice President of Sales and Marketing for a large Blues Plan, and an executive with an HMO. He is a Certified Benefits Consultant, and served in the U.S. Air Force. Jennifer Holland Director of Operations, HMS Employer Solutions As Director of Operations for HMS Employer Solutions, Jennifer Holland oversees HMS’s Dependent Audit Specialists, and assists with project planning and execution for the dependent eligibility audit process. She has a strong focus on escalation resolution and ensuring operational excellence. Ms. Holland’s more than 14 years of experience includes positions in customer service, client accounts, project management, and operational process design in a range of industries. Among her accomplishments, she has managed marketing and operations for clients with revenue exceeding $30 million, and built a customer contact center handling nearly one million calls annually.
- 15. 15 877.814.4083 Employer@hms.com www.dependentcheck.com www.hms.com » For more information: About HMS Employer Solutions We create immediate measurable value for employers by protecting the financial vitality of their health plans. We are part of HMS, the nation’s premier healthcare cost containment expert. As a result of our services, our clients recovered over $2.5 billion in 2011, and saved an additional $7 billion through prevention of erroneous payments.
- 16. 16 Copyright © 2012 HMS. All rights reserved.