Dependent Eligibility Verification 8 Reasons Why it Makes More Sense than Ever

Transcription

1 PERSPECTIVE Dependent Eligibility Verification 8 Reasons Why it Makes More Sense than Ever July 2011 Paul Vosters, President and COO, Discovery Health Partners Elizabeth Longo, Chief Legal Counsel, Discovery Health Partners Discovery Health Partners

2 Dependent Eligibility Verification: Is there still a business case in a post healthcare reform world? At Discovery Health Partners, we believe the answer is yes there is a strong business case for conducting periodic verification of eligible dependents, perhaps even more so in the wake of healthcare reform. Some have questioned whether healthcare reform changes that raise the ceiling on coverage ages for dependent children eliminate the urgency for reviewing dependent eligibility. Not so! With additional dependents now eligible for coverage, we contend Dependent Eligibility Verification is one way to offset those additional costs by eliminating those not eligible for coverage. This Perspective from Discovery Health Partners shares our point of view and cites 8 reasons why periodically conducting a Dependent Eligibility Verification is best business practice and will deliver a return immediately and over the longer term in terms of reduced claim costs. First, let s review how healthcare reform has affected dependent eligibility considerations. Impact of healthcare reform on dependent eligibility Enacted on March 23, 2010, the Affordable Care Act, as amended by the Reconciliation Act, requires group health plans that provide dependent coverage of children to continue to make this coverage available for children until age 26, regardless of their marital status, beginning with the first plan year after September 23, 2010 (i.e., January 1, 2011, for calendar year plans). One selling point for healthcare reform was that people would be allowed to keep insurance coverage they already have. To make that possible, the Affordable Care Act grandfathered health plans that were in effect the day the law was signed March 23, 2010 and exempted them from many required changes in health insurance. Very importantly, the Grandfather Rule stipulates that for plan years beginning before 2014, a grandfathered group health plan may exclude an adult child if the adult child is eligible to enroll in an employer-sponsored health plan other than a group health plan of a parent (i.e., if the child has coverage through his/her own employer). Now, what are the implications for plan sponsors? How does this impact the need for Dependent Eligibility Verifications? We believe there are good reasons to verify dependent eligibility immediately and with ongoing frequency. Here are our top reasons: Reason #1: Coverage of ineligible dependents remains a problem Healthcare reform nets us an increase in the number of eligible dependents, specifically in the age category, and a corresponding net decrease in the potential number of ineligible dependents. This decline does not mean we no longer have a problem with the coverage of ineligible dependents! The decrease in potential ineligibles represents just a percentage of the total ineligible population, which also includes ex-spouses, grandchildren, and non-immediate family members. These others, incidentally, 2

3 tend to be higher consumers of healthcare than their younger and usually healthy 25-and-under brethren. As plan sponsors, you still have an issue with coverage of ineligible dependents. Reason #2: Return on investment for Dependent Eligibility Verifications is significant and immediate Our experience as healthcare cost containment experts shows that 6% or more of your covered dependents are ineligible for benefits and that s after healthcare reform liberalizing the ceiling for dependent coverage. At an average cost of $3,600 per dependent each year, or $300 per month per dependent, every month that passes with ineligibles on the plan translates into a big and unnecessary expense. In many cases, the percentage of ineligible dependents is much higher than 6%. For example, if there have been infrequent Dependent Eligibility Reviews, the likelihood of higher ineligibility is there. Characteristics of the covered population factor in as well. For one manufacturer, we found 14.8% of its dependents were ineligible, translating into annual savings of $1.3 MM. Such cases are not unusual. In addition to the ongoing annual savings achieved by removing ineligibles, return on investment (ROI) for Dependent Eligibility Verification occurs in the first year, usually within months. That s because the cost of conducting the verification is immediately offset by reduced claim volume. Furthermore, the ROI itself averages 25:1 to 40:1, impressive results by anyone s standards. Reason #3: Attention, everyone--the clock is ticking on the Grandfather Rule exclusion for adult dependents eligible for coverage through their own employers While health care reform has imposed an obligation to offer coverage to adult dependents until they are 26, there is an opportunity here to limit the number of new dependents who must be added to the employer s plan. Dependent Eligibility delivers ROI of 10:1 to 25:1 Immediate savings. Eliminate an average of $3,600 per year per ineligible dependent. Long-term benefit. Reduce paid claim cost this year; benefit from lower cost in future years. Offset for cost increases. Compensate for the impact of legislative change and ongoing healthcare cost increases. Build employee good will. Show your employees you re working to keep costs under control. Risk avoidance. Protect your organization against catastrophic claims from dependents who should not be covered. Ensure you re compliant with regulations. Plans that have maintained their grandfathered status may be able to exclude from coverage dependents age 19 to 25 who have access to health coverage through their own employers. This limited time exception, extending until 2014, makes it imperative for employers who have maintained grandfathered status to conduct a Dependent Eligibility Verification as soon as possible. Studies of insureds have shown a bias to maintain the status quo and remain on the plan in which they are enrolled, despite the existence of alternative coverage. As we ve shown, every month ineligible dependents remain on the plan represents money spent unnecessarily. 3

4 Reason #4: It s a win/win for everyone Conducting a Dependent Eligibility Verification allows employers to cut healthcare costs without reducing employee benefits. Employees win, too, because they won t see premium hikes driven by the need to offset the higher costs of carrying additional dependents on the plan. Employees already cover an average of 23% of the cost of their plans, according to data from Kaiser Family Foundation, a percentage that has steadily increased in the last decades. Reason #5: It s fairer to enrolled eligible dependents When ineligible members are enrolled and using plan coverage, the cost of coverage increases for everyone. This is especially true now in this economic and employment environment, when more families are financially strained and may seek to cover ineligible dependents. In our experience, employees recognize why their employers don t want ineligible dependents on the plan and how it perversely affects their premium costs. Conducting a Dependent Eligibility Verification shows employees that you are trying to play fair and control costs for everyone s benefit Reason #6: ERISA mandates a fiduciary duty to manage responsibly Conducting a Dependent Eligibility Verification is critical for ensuring that plan administrators are complying with their fiduciary duties under ERISA. ERISA requires that administrators manage the plan for the excusive benefit of participants and that administrators administer the plan as it was designed and according to plan documents. Conducting a Dependent Eligibility Verification demonstrates that the plan is in compliance with federal law by ensuring that only eligible dependents are on the plan and the plan is administered in accordance with its plan documents. Reason #7: Sarbanes-Oxley requires stringent internal financial controls Sarbanes-Oxley requires review and maintenance of internal financial controls. Plan coverage of ineligible dependents may cause the plan to incur significant benefit costs demonstrating a lack of internal controls. Depending on the financial impact, independent auditors may consider the coverage of ineligible dependents to be a reportable incident to shareholders. Regular Dependent Eligibility Verifications eliminate this potential embarrassment. Reason #8: It protects the plan against catastrophic loss Conducting a Dependent Eligibility Verification ensures that the plan does not become liable for catastrophic claims. If an ineligible dependent sustains a catastrophic illness, the plan will be liable. Stop loss carriers audit large claims and will deny reimbursement for those claims found to be incurred by ineligible dependents, leaving the plan with exposure for catastrophic claims. 4

5 In closing Conducting a Dependent Eligibility Verification gives you a better pulse on your healthcare costs and can predictably reduce current spend for dependent coverage by millions of dollars this year and beyond. In addition to its compelling ROI, verifying the eligibility of dependents sends a positive message to employees and ensures that you comply with regulations and protect your organization against catastrophic loss. It s a smart business practice and in our view a best practice in healthcare cost containment. About the Authors Paul Vosters is President and Chief Operating Officer of Discovery Health Partners. Paul brings 20+ years in leadership roles in healthcare information management. Prior to founding Discovery Health Partners, Paul led HP s Information Management Services practice for Health & Life Sciences, where his teams were known for applying innovative solutions to client problems, winning awards for excellence and business impact. Prior to HP, Paul led the Health & Life Sciences practice at Knightsbridge Solutions, where he built the practice to become the company s largest revenue and profit contributor. Before then, Paul held key business and technology posts at Baxter Healthcare, where he drove the company s global data warehousing initiative, which consolidated 128 data centers into a single location in Europe, and running Baxter s global supply chain. Paul also worked for international companies in manufacturing and retail while living in Belgium, Norway, Spain and Germany. Elizabeth Longo is Chief Legal Counsel of Discovery Health Partners. Liz brings extensive experience in subrogation law and coordination of benefits gained in 17-year career as a professional attorney. As a senior attorney with the law firm of Coghlan Kukankos LLC, Liz handled thousands of subrogation cases involving motor vehicle accidents, slip and fall accidents, product liability, medical malpractice, specific risk and legal malpractice. The value of the claims involved in such cases has ranged from several thousand to nearly three quarters of a million dollars. Her extensive knowledge and hands-on approach to implementing subrogation programs has resulted in the recovery of millions of dollars annually for Plans she has represented. Liz has also litigated noteworthy employment and benefits cases in federal district courts and state courts throughout the country as well as complex commercial litigation cases involving employment and trade secret misappropriation and intellectual property issues. Liz is admitted to practice in the state of Illinois. Her federal practice admissions include the U.S. District Court for the Northern District of Illinois and the U.S. Seventh Circuit Court of Appeals. She is a member of the Chicago and Illinois State Bar Associations. Liz received her law degree and MBA from DePaul University and her BBA from Loyola University. 5

6 About Discovery Health Partners Discovery Health Partners addresses pressing healthcare cost concerns with a suite of informationdriven cost containment solutions that enable health plans, self-funded employer groups and government agencies to confidently manage their prepayment savings and postpayment recovery efforts. These include solutions for Subrogation, Dependent Eligibility Verification, and Coordination of Benefits, and others. We bring decades of experience from recognized leaders within the healthcare, legal, information technology, business intelligence and management consulting industries. We re proud to use our combined expertise to improve upon current industry methods and help our clients and business partners maximize data, modernize workflow, and improve reporting and analytics. In the end, our clients recover more dollars, faster, while consistently maximizing efficiency and improving the customer experience. Discovery Health Partners is a division of LaunchPoint, provider of enterprise-class information-centric business services and solutions combining information management and analytic disciplines with emerging technologies. Contact us to learn more about our intelligent healthcare cost containment solutions. Discovery Health Partners 1701 Golf Road, Tower One, Suite 1100 Rolling Meadows, IL