Members of the Joint Labor-Management Benefits Committee

Transcription

1 CITY OF LOS ANGELES JOINT LABOR-MANAGEMENT BENEFITS COMMITTEE Date: January 16, 2014 To: From: Subject: Members of the Joint Labor-Management Benefits Committee Staff FLEX Plan Design Changes Plan Year 2014 Dependent Eligibility Verification Program (Agenda Item No. 4) RECOMMENDATION: That the Joint Labor-Management Benefits Committee approve the recommendation to move forward with the implementation of a Dependent Eligibility Verification (DEV) program and direct staff to request City Council approval to grant amnesty to employees whose ineligible dependent(s) are removed from the Plan by the DEV program deadline with the exception of those cases involving fraud or intentional misrepresentation. SUMMARY: In 2012 staff proposed that the JLMBC consider approving a Dependent Audit (Dependent Eligibility Verification) for the Flex Benefit Plan as a mechanism to ensure that the Plan covers qualified eligible dependents and reduce unnecessary benefit expenditures by removing ineligible dependents. The DEV process is a best practice for benefit plan administration and ensures the Plan meets its fiduciary obligations. During a special meeting on July 16, 2012, the JLMBC approved the implementation of a full DEV program at a proposed cost of $250,000, to be conducted by the Third Party Administrator (TPA). On November 20, 2013, Mercer TPA provided a proposal at an additional cost of $25,000 ($275,000 total cost), as a result of an increase in the number of covered dependents under the Plan since their initial proposal, to perform a full document verification that will require all employees who cover dependents to submit documentation to prove their dependents eligibility in order to remain on the Flex Plan. If employees fail to submit the necessary documentation by the specified deadline the employees dependents will be removed from Flex Plan medical and dental coverage. The DEV process will reveal situations where employees have ineligible dependents on their Flex medical and/or dental plan, the City is providing a premium subsidy for the ineligible dependent(s) and the Flex Plan is absorbing the ineligible dependent(s) claim JOINT LABOR-MANAGEMENT BENEFITS COMMITTEE

2 costs. Providing an employee with benefit coverage (premium subsidy) is considered an overpayment. The Personnel Department is required to collect overpayments from employees; however staff is proposing an amnesty period for employees that have ineligible dependents removed from the Flex Benefits Plan during the DEV program. The following report is an overview of the proposed DEV program including an employee amnesty component and aggressive timeline for targeted audit completion by the end of April DISCUSSION: The City is committed to offering quality and affordable health plans to employees and their eligible dependents. As part of fulfilling our fiduciary responsibility to keep benefit plans affordable and sustainable amidst rising costs, it is imperative only dependents who meet our eligibility requirements are covered on our plans. Ineligible dependents enrolled in the City s health plans increase the cost of health care coverage for the City and Flex plan participants unnecessarily. The proposed DEV program will assist in ensuring the Flex Benefits Plan is in compliance will applicable laws, regulations, plan provisions as well as reducing unnecessary expenditures and claims costs. Dependent Eligibility Verification Audit Project Timeline January 2014 weeks 1-4 Planning and Development Personnel Dept to mail notice to employees with dependents February 2014 weeks 5-8 Mercer TPA Mailing to Employees: Personalized Employee Document Verification Package March 2014 weeks 9-12 Midway reminder notice mailed by Mercer Employee Document Verification continues April 2014 weeks Employee Correction Period End of April 2014: Ineligible Dependent Removals Processed The Dependent Audit will encompass 14,695 employees with 34,293 covered dependents and involves: 1) A four-week planning and development phase, during which Employee Benefits Division staff will work diligently with Mercer TPA to develop all communication documents, determine eligibility data, define acceptable verification documents, and determine actions for non-respondents and employees providing incomplete information. The Personnel Department will then mail a notice to employees with dependents introducing Mercer TPA as the provider of the upcoming audit

3 2) A six-week published document verification period, during which Mercer TPA will distribute a Personalized Document Verification Package to employees covering dependents requiring appropriate supporting documentation. A toll-free call center supporting both English and Spanish languages will be available for employees with any questions as well as a customizable employee website to facilitate verification. Weekly Status Notices will be mailed by Mercer TPA to employees who provide documentation that indicates whether the employee has completed the verification or whether any documents are outstanding. A nonresponse reminder will be mailed by Mercer TPA midway through the six-week document verification period to employees who have not responded. 3) The DEV process can also include an optional two-week correction period to allow employees one last opportunity to complete the verification process. At the conclusion of the verification process (Step 2), a final notice can be sent to employees who did not start or did not complete DEV process to provide them with two additional weeks to complete the DEV process. 4) At the conclusion of the DEV process, Mercer TPA will report dependents to be removed due to failure to meet eligibility requirements, failure to provide adequate documentation by the declared deadline, or failure to respond. Mercer Benefits Administration Team in Dallas will process the removal of coverage for any ineligible dependents. The Dependent Audit is conservatively projected to result in a 1-2% reduction in the number of covered dependents, achieved through the removal of ineligible dependents from the FLEX plan, which would result in a savings of roughly $935K- $2.2 million in one year and between $3.5 - $7.2 million in three years, after deducting the cost of the audit, and not including potential increases in future claim costs. The DEV return on investment (ROI) is based on the average City cost per dependent per month. Since some of the dropped dependents will be from Employee + Child(ren) and Employee + Family tiers, if an employee maintains other dependents to stay in the same tier level (i.e. an Employee with a family of four dependents only drops one child dependent remains in the Employee + Family tier), the City s contribution toward premiums will not change. However, claims experience will decrease from the reduced number of covered lives, resulting in overall cost savings. In these situations expected ROI may not be realized immediately. The following chart illustrates the ROI estimates: - 3 -

4 Return on Investment for Full Document Verification Statistics for the City of Los Angeles provided by Mercer TPA Number of Employees Covering Dependents 14,695 Average Number of Dependents 2.3 Average Cost per Dependent per Month (Employer Portion Only) $ DEV Fees and Expenses Mercer Fees $275,000 Estimated Expenses $33,900 Total DEV Expenses $308,900 Projected Savings* Percent of Dependents Removed 1% 2% 3% 4% Number of Dependents Removed ,014 1,352 Total monthly savings $103,695 $207,390 $311,085 $414,780 Total annual savings $1,244,340 $2,488,680 $3,733,020 $4,977,360 Net Projected Savings (Cost of DEV Expenses Deducted from Savings) Net Savings 1 st year $935,440 $2,179,780 $3,424,121 $4,668,461 Net Savings 3 years $3,424,121 $7,157,141 $10,890,162 $14,623,183 Return on Investment First Year Return on Investment Over 3 Years 303% 706% 1108% 1511% 1108% 2317% 3525% 4734% *Savings resulting from reducing employer subsidy. Staff aims to complete the DEV process by the end of April 2014, prior to FLEX benefit cost negotiations for plan year To meet this objective, staff must enter the planning and development phase of the project beginning January DEV AMNESTY FOR EMPLOYEES According to Mercer TPA and other agencies we contacted (Orange County and CalPERS) the best practice is to provide employees with amnesty during the DEV process. DEV amnesty allows employees to remove ineligible dependents and avoid - 4 -

5 liability for employer overpayments of premium contributions and/or claim costs associated with covering the ineligible dependents. The amnesty approach is recommended because it encourages employees to voluntary terminate coverage for ineligible dependents, correct mistakes, cooperate with the DEV process, and reduce administrative costs associated with recovering overpayments. Staff estimates that one to two percent (338 to 676) of the Flex Benefit Plan dependents will be found to be ineligible dependents during the DEV process either because the dependent no longer meets the Flex dependent eligibility definition and/or the employees fail to submit the required documentation to substantiate the dependents eligibility. These cases will likely result in an overpayment situation where the City provided a subsidy (employer premium contribution) for an ineligible dependent(s) premium and/or the Flex Plan incurred claims costs for the ineligible dependent(s) over a period of time. The City is required to collect overpayments from employees regardless of the amount owed and follow an administrative collection process. The administrative collection process requires the City to take the following general steps: document the overpayment amount notify the employee regarding the overpayment findings allow the employee to respond to the overpayment claim employee pays the overpayment amount or enters into a repayment plan City tracks repayments Outstanding unpaid amounts owed are referred to a collections process The City cannot retroactively cancel or discontinue health coverage from the date of the ineligible condition except in instances of fraud, intentional misrepresentation, or failure to pay premiums 1. Staff is proposing an amnesty period for employees that have ineligible dependents removed from the Flex Benefits Plan during the DEV program. The following are examples of common ineligible dependents that we will find during the DEV process: Children that exceed the maximum age limits permitted under the Flex Plan Dependent (grandchild, disabled child, legal ward, or step child) that no longer meet the Flex Plan eligibility criteria Former spouses following a divorce Former domestic partners following a termination of domestic partnership and/or no longer meeting the Flex Plan eligibility criteria Clerical or administrative error that allowed ineligible dependent or employee Flex coverage The main goal of the DEV program is to ensure that the Flex Benefits plan covers eligible dependents and reduce unnecessary plan expenditures. In order to achieve this goal staff finds that providing employees with amnesty during the DEV process will 1 Affordable Care Act, Section 2712, Prohibition on Rescissions

6 encourage employees to fully cooperate and reduce administrative costs associated with collecting overpayments and appeals process. DEV amnesty would not be applicable in cases where an employee is suspected of committing fraud or intentional misrepresentation. Employee Benefits Division staff consulted with the City Attorney regarding providing amnesty to employees who are found to have ineligible dependents and was advised that City Council approval would be required to grant amnesty. Staff recommends that the JLMBC approve a motion supporting the Personnel s recommendation to the City Council to consider approving DEV amnesty for employees that have ineligible dependents removed during the DEV process. CONCLUSION: Staff recommends that the JLMBC direct staff to work with Mercer TPA to fulfill the proposed Dependent Eligibility Verification audit plan and seek City Council approval to grant amnesty to employees that have ineligible dependents removed during the DEV process. The DEV amnesty will not apply to cases involving fraud or intentional misrepresentation. Submitted by: Maria Koo Approved by: Alejandrina Basquez - 6 -