Addition by subtraction; Employers turn to health care plan audits in drive to reduce costs

KRISTIN GUNDERSON HUNT



Benefit departments seeking to cut costs are looking within, and many are auditing their health care costs with hopes of finding immediate savings.

``With the economy in the tailspin it's in right now, clients are looking at audits as a way to demonstrate that their plans are not leaking money inappropriately,'' said Greg Mansur, national leader for Watson Wyatt Worldwide's claim audit practice in Los Angeles. ``They view them as a good investment.''

A variety of health care audits can help benefit managers find savings, experts said, though some audits seemingly offer more dramatic results than others. Dependent eligibility audits, whereby companies review whether the dependents enrolled in their medical benefit program truly qualify, are actually the fastest-growing form of audits companies are doing, health care audit experts said.

According to a survey of 489 large employers by Watson Wyatt, for which results were released in March, 54% of employers conducted dependent eligibility audits in 2008, up from 47% in 2007. Watson Wyatt estimates that 61% of employers will complete such audits in 2009.

The popularity of such audits has been spurred by their immediate results on companies' bottom lines once ineligible dependents—most often ex-spouses and children who have either ``aged out'' or have dropped out of college, and are therefore disqualified from receiving benefits—are removed from employers' health care rolls and no longer are driving claims costs, Mr. Mansur said. Such audits often reveal that between 3% and 12% of dependents on an employer's plan are ineligible, experts said.

Savings from removing those ineligible dependents are all over the map. Mark Rucci, senior vp of Gallagher Benefit Services Inc. in Princeton, N.J., said employers can reduce their total health care expenditures by 1% to 3% after removing ineligible dependents from their plans. He said larger companies can save millions of dollars.


Dan Priga, principal and national business leader of Mercer Health & Benefits L.L.C.'s performance audit group based in Pittsburgh, said if employers assume a 5% reduction in dependents for every 1,000 dependents audited, and conservatively estimate each dependent costs $1,800, they can expect to save almost $100,000.

Quick bottom-line gains

The Cleveland Metropolitan School District in Ohio participated in a dependent health care audit in November 2007, finding savings that immediately improved the bottom line as well as future unknown savings, said Ed S. Skinner Jr., executive director of benefits and risk management for the district.

``There was a feeling that enrollment was out of touch with reality,'' he said. ``We needed to look harder at it. The cost factor of insuring individuals not eligible for our plan was also a driving factor'' in doing the audit, Mr. Skinner said.

The district's bottom line was dramatically helped by transitioning 291 employees from family coverage to single status, which resulted in annual savings of $2.25 million, he said. It also removed 90 ineligible spouses and 473 ineligible dependent children from the health plan, saving the district from paying out future claims for individuals who should not be on the plan—generating unknown savings, Mr. Skinner said. He said the audit, which offered a 34:1 return on investment, was worth every penny.

``It saved us a ton of money and it provided an opportunity for us to clean up our plan at one time,'' he said. ``Now, we're keeping the plan administration clean so we don't run into this again.''

Other fast-growing forms of audits are:

c Eligibility data audits: In these, eligibility information used by third-party administrators is reconciled with the enrollment data in the employer's human resources file.

c Clinical audits: These audits identify and evaluate the health risks of the employee population so those risks can be adequately or proactively managed to save money in the long term, Mr. Rucci said.

Such audits have been less common until recently, and the savings experienced from these audits typically are anecdotal, Mr. Rucci said, but employers are realizing their value within audit programs. With eligibility data audits, employers often find errors on behalf of their TPAs costing them money. Clinical audits are valuable, he said, because employers are trying to keep people healthy to manage their costs long term.

Traditional claim audits, which analyze whether claim dollars are paid correctly and whether the plan design is administered correctly, aren't garnering the same attention as these newer audits because they don't always directly affect the bottom line, but participation in such audits is steady, Mr. Rucci said.

``The value of a claim audit is partially due diligence in monitoring your third-party administrator,'' Mr. Rucci said. ``Companies want an independent assessment as to whether their TPA is doing a good job. The value of a claim audit is not always measured in recovered overpayments'' but it does certify the TPA is doing a good job, he explained.

Savings at a cost

Despite the savings companies will see from audits, they come at a cost. On average, the starting price of a dependent eligibility audit is $35,000, Mr. Rucci said, and the price increases based on an employer's size and the project's complexity. For example, some employers have more eligibility rules than others or they have different rules for different groups of employees, such as union and nonunion workers.

On average, eligibility data audits typically cost around $15,000, clinical audits cost about $30,000 and claim audits cost between $35,000 and $40,000, Mr. Rucci said. Still, experts say employers can expect to see a return on investment with each audit.

``Organizations are going to be looking for money, and for a relatively modest investment of conducting an audit, the potential return is pretty good,'' Mr. Priga said.


He said his clients often make back the money they spend on dependent eligibility audits within the first two months of removing ineligible dependents from their plans. He also said savings from claim audits vary, but employers will see on average a $3 to $4 return, conservatively, for every $1 spent. Mr. Rucci said claim audits produce a return on investment of three to five times the audit cost on average and pay for themselves over time.

An added bonus of such audits, particularly dependent eligibility audits, is that savings come without reducing benefits offered to employees, said Keith Bird, vp of sales for Suwanee, Ga.-based Impact Interactive, which conducts audits.

``This is a way to find money in the health care program that is being wasted,'' Mr. Bird said. ``They are able to reduce health care costs without having to go to employees and say they need to cut benefits or increase costs. It's one of the last few areas where you can find money sitting on the table.''

Watson Wyatt's Mr. Mansur said that, coming into 2009, he thought few clients would have the budgets for audits, but instead he has seen more interest as people realize the effect that audits can have on their spending.

``The economy is a motivating factor in organizations wanting to audit health care plans,'' he said. ``Health care is such a big piece of their overall employee cost today, they want to make sure that money is being handled well.''