The Health Plan Audit: Why It’s More Critical Today

Even after the first attempt at a proposed rewrite of the nation’s healthcare law was pulled from a congressional vote back in March, the potential of the president’s American Health Care Act, aka “Trumpcare,” still weighs on the minds of employers and employees alike.

As the storm clouds of uncertainty over the issue continue to brew, the fact remains that the stakes in the healthcare market are high. Employers today cover 177 million U.S. employees and spend $668 billion on health care, and cost increases continue to outpace general inflation by almost eight times, according to the 2017 Segal Health Plan Cost Trend Survey by Segal Consulting, the HR and benefits advisory firm in New York. And many of the proposed policy changes could affect employer-sponsored coverage.

No matter the outcome, it’s entirely possible that employers may face new pressure to alter their healthcare benefits programs to help ease new financial strain. That’s why more organizations are tuning up various plan audits and design reviews as one way to relieve the stress.

The Most Popular Audit Trio

Generally, these types of reviews fall into three categories:

  • Design reviews examine a plan’s overall structure to assess how cost effectively it serves a particular company’s workforce, how it compares with competitors’ plans, and how it can be improved.
  • Eligibility audits identify plan participants who should be purged from the rolls because they no longer qualify for benefits. Enrollment audits then reconcile the eligibility data.
  • Preimplementation audits act as a “test run,” where sample claim scenarios for each plan option, benefit, and limit are processed and settled to make sure systems have been set up to correctly interpret the employer’s plan provisions—and avoid costly systemic errors before the plan goes live.

Experts identify some bottom-line reasons to pursue such reviews. Many things may spark an audit, of course, including compliance obligations, major plan changes, a new plan administrator or unexpected utilization trends. But HR and benefits leaders are progressively targeting the exercise to help drive longer-term health plan objectives—along with the immediate, short-term returns or one-time recovery of funds that audits can provide.

Most companies—75 percent—now routinely use medical claim data and similar benchmarking information to advise them about decisions or changes to their health and wellness programs, finds the 21st annual Best Practices in Health Care Employer Survey by advisory firm Willis Towers Watson. Yet only 44 percent of them share health program performance metrics with the C-suite, senior management, or as a corporate reported metric on a regular basis. That’s a mistake, notes Willis Towers, which concludes that “companies of all sizes and across all industries could do more with medical claim data to achieve higher-performing health plans.”

On top of that, nationwide estimates suggest that eligibility errors are prevalent in health plans. In fact, eligibility audits are reported to produce between 3 percent and 8 percent reductions in the number of eligible dependents. These numbers add up, considering that 46.5 percent of all covered employees also elect dependent coverage, according to United Benefit Advisors’ 2016 annual health plan survey of more than 11,000 employers.

A Speedy ROI

These audits can lead to savings not only by purging the ineligible but also by generating reimbursements from employees for the payment of erroneous or fraudulent claims and by lowering premiums and administrative costs for plans whose fees are based on the number of enrollees.

An upside that’s especially attractive to companies is that these types of checks can produce “quick wins.” In just 4 months, a complete audit can be completed, and companies can sometimes come away with a substantial return in short order.

For example, if an employer has 10,000 dependents enrolled in its health plan and 8 percent of those are ineligible for coverage, costing $3,200 each per year on average, the savings in the first year would be nearly $2.6 million.

While these types of audits are more prevalent and popular, they’re now followed closely by medical claims audits and clinical audits, with half of employers either conducting them or planning to conduct them soon, according to a survey of 1,300 senior HR leaders and benefits managers by Aon Hewitt, the Chicago-based HR and risk management consulting firm.

The motivation is clear. The survey points out that estimated average medical claim error rates typically range from 2 percent to 5 percent of total claims paid.

In tomorrow’s Advisor, more about how two other trends—compliance audits and performance guarantees—are likely to gain new importance going forward.