Sue, whose mother works
in accounting, recently graduated from college; Martha is marketing-genius Steve’s
ex-wife. What do they have in common? They were once dependents covered under
the company’s healthcare plan but are no longer eligible. The problem is that
the health plan still lists them as covered.
Michael Watson, senior
vice president of sales for business services firm Budco, says these scenarios
are all too common. Budco conducts audits of health plan databases for some of
the largest companies in the
States
ineligible dependents serendipitously, when it was hired to build applications
to match a company’s dependent population.
Questionable Data
“In doing that, we
started to study and research the database of dependents, and we found a lot of
anomalies with the data,” Watson explains. “For example, we found they had
people who were very old—in fact, over 100 years old. There were people who
weren’t even alive, but were still on the dependent rolls.”
“That begged the
question, ‘What other situations are out there where there are ineligible
dependents?’ So we started studying the data, looking for different reasons
there might be ineligible dependents, and we started to do some test audits
with clients to see if we could hone in on specific areas.”
Several years later,
Budco has audited well over a million employees from Fortune 100
companies and has yet to find a company that doesn’t have ineligible dependents
on its rolls, Watson says.
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Ineligible Dependents
Are Expensive
In every organization it’s
audited—including its own—Budco has discovered roughly 15 percent of dependents
are not eligible for coverage. Although deceased dependents are not making
claims against the plan, the company generally pays a per-participant price for
them. “Our company is self-insured,” says Watson, “and all of our employees carry
a Blue Cross card. We’re paying Blue Cross a monthly fee for every one of those
cards. That’s how companies are usually set up. In addition to those costs, you
also have accounting costs. These are real big numbers.”
“The Financial
Accounting Standards Board (FASB) requires companies to put aside dollars for
future healthcare expenditures for all their dependents. So if you have
somebody on your rolls who is deceased, you will have been putting money aside
for their future healthcare costs,” says Watson.
“If an audit finds them,
the company gets to take that money back. What we found with some very large
companies is they’ve been able to take literally millions of dollars back that
were previously booked as expenses,” Watson explains.
Considering the payoff,
Watson says the cost of an audit is minimal. “In every single audit we’ve done,”
he says, “the customer has literally saved millions of dollars more than the
audit cost, in the first year.”
Of course, those are Fortune
100 companies; what about smaller companies? An 800-employee self-insured company
could easily cover 2,000 individuals. If an audit turned up 120 ineligible
dependents, or 10 percent of the dependent population, a company paying $350 a
month per person for their coverage stands to save at least $504,000 a year.
Various Reasons Ineligibles
Remain on Plans
Watson says the reasons
dependents remain in the company’s databases of eligible participants vary from
misunderstanding to carelessness to a sense of entitlement on an employee’s
part.
An audit of ineligible
dependents should be presented as an opportunity rather than a problem, Watson
suggests. Employees have seen their insurance rates increase in recent years,
and they understand that there is a healthcare crisis in the
the audit as a way of holding the line on costs can be effective.
Inform Employees About
Eligibility Rules
“Over the years,
companies have not done a very good job of communicating who is eligible and
who is not,” Watson says. “And let’s face it: 20 years ago the cost of health
care wasn’t what it is today, so this wasn’t a real high priority.”
The first part of the
education process, says Watson, involves creating a very simple and
easy-to-understand explanation of the eligibility rules and distributing it to all
employees. Companies often give employees an amnesty period to allow them to
remove ineligible dependents from the plan. “Given the opportunity to do the
right thing, most people do,” according to Watson. “That being said, there are
others who, for whatever reason, don’t take their ineligible dependents off. In
our first communication, we let people know that after the amnesty period there
will be a full-blown audit. So they know that if they don’t take their
ineligible dependent off, they’re going to be found out. When that’s done, we
require people to send documentation to us, confirming that the remaining
dependents are actually eligible for health care.”
Fiduciary Responsibility
Encourages Audits
Watson points out that
the Sarbanes-Oxley Act—the federal law designed to deter corporate corruption
and protect employees who blow the whistle on corporate transgressions—is
another reason to pursue an audit of the dependents database. “If you were a
CEO or a CFO and you knew there were ineligible dependents in the plan, you
have a fiduciary responsibility to correct the situation. Would you sign off on
the financial statements if you knew you had this problem? That’s not a proper
representation to your shareholders; you’re legally obligated to fix it,” says
Watson.
What’s In It for
Employees
All employees have an
interest in making sure ineligible employees are off the books—and an audit can
be a way of doing that. “If you’re participating in the cost, you want to make
sure that somebody down the hall isn’t taking advantage of the situation,
driving up those costs for everybody else,” Watson says. “And the company wants
to be able to provide a high level of benefits. When they can save millions of
dollars by getting people who shouldn’t even be getting the benefits off the
program, it allows them to spend the money on those who are eligible.”