With healthcare costs continuing to rise at double-digit rates and the potential of healthcare reform increasing the burden on a company’s employee healthcare costs, a successful strategy for controlling costs is through a dependent eligibility audit.

By EMILY RHOMBERG, a senior manager in the LECG-SMART Compensation & Benefits group, who brings more than 15 years of insight on employee benefits, executive compensation and change management.

Self-insured employers, who bear the risk of the medical costs of employees, have begun to more regularly employ dependent eligibility audits to help contain and reduce healthcare costs.

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According to employers and providers of the service who have released data, overall healthcare costs can be reduced by 7 percent to 12 percent per year or more by deploying the same disciplines as a financial statement audit to uncover dependents still covered under medical insurance who no longer meet the established eligibility criteria.

The practice of employing auditing best practices, in conjunction with an integrated employee communications plan and practical knowledge of healthcare benefits plan and regulatory provisions, is gaining broader acceptance by employers and their health insurance carriers alike. The financial benefits for employers and their employees are clear: real-dollar savings achieved immediately.

A dependent eligibility audit yields benefits both for employers and their employees. While a dependent eligibility audit requires up-front planning and time, it can bring significant benefits to all involved. Employers yield immediate, tangible savings by removing ineligible dependents from an employer’s health plans.

The majority of ineligibles removed from the census fall into the categories of either former spouses or dependent children over the age of 19.

Employers in a fully-insured medical plan benefit too. The cost of insuring the population falls to the carrier, but savings to the employer can be found primarily through reduced premiums paid to the insurer (although the savings are less significant in this scenario).

Employees save money year over year through both lower premiums offered by employers and the employer’s ability to retain some desirable plan design features because of the savings achieved by removing ineligible dependents.

VALUE BEYOND COST SAVINGS

Additional benefits to employers who choose to employ dependent eligibility audits on either a one-time basis or on regular intervals include:

– IRC 401 “Exclusive Benefit Rule”: The plan sponsor must act to ensure that health plan dollars are used for eligible expenses and must act solely in the interest of participants and their beneficiaries. These individuals can be liable if they knowingly pay claims for ineligible dependents.

– ERISA: Plan documents must include dependent eligibility provisions. By covering ineligible dependents, group administrators risk violating ERISA’s requirement that the plan be operated according to the established document and could face fines and additional administrative burdens.

– Section 125 Pre-Tax Contributions: The IRS allows for pretax dollars only for employee contributions for qualified cafeteria plans and beneficiaries. Allowing for pretax deductions for unqualified or ineligible dependents and beneficiaries could subject the employer to penalties, taxes or plan disqualification.

– Sarbanes-Oxley Compliance: The management team of a publically held employer is required to both assess and report the effectiveness of its internal controls over its financial reporting. Because healthcare is a significant expense, companies are conducting dependent eligibility audits to demonstrate clear financial controls and anti-fraud provisions.

WHY THE AUDIT APPROACH MATTERS

While such audits can be an incredibly valuable tool, if not properly executed, a dependent eligibility audit can spell employee-relations disaster. Executive level buy-in and visible support are the key elements of a successful implementation. Other important components of the process include:

– A holistic employee communications strategy, which identifies the purpose of the audit and the benefits to both the employer and employee population.

– Inclusion of an amnesty period, which allows employees to self-report any known eligibility violations and removal from coverage, without negative consequences, before the audit begins.

– A clear understanding of the plan document and procedures, and the definitions of eligible dependents.

– A solid data repository, which can be utilized to maintain the required documentation to substantiate each type of eligible dependent.

– A central source for employee questions and follow-up, which provides consistent and clear communication to employees.

WHO PERFORMS THE AUDIT?

Dependent eligibility audits can be performed internally, through the insurance provider or through a third-party service provider. Given the sensitive nature of the information often required to be submitted for dependent eligibility substantiation, a third-party provider is often selected for their independence, objectivity and subject-matter expertise.

These eligibility audits are generally conducted on a one-time basis, where the entire dependent population is reviewed over a period of weeks. In addition to this one-time process, we recommend that procedures are implemented to both require documentation upon initial enrolment of dependents and to conduct sample audits periodically. Both of these changes will improve the overall compliance with the plan document and continue to help prevent unnecessary costs.

We also recommend that employers look for providers whose approach includes a comprehensive review of the current dependent eligibility management processes and procedures to identify potential vulnerabilities in current procedures. These vulnerabilities can then be addressed in the audit.

In addition, look for a provider that ensures knowledge transfer throughout the process, resulting in updated documentation and procedures that can then be utilized to prevent future exceptions.

By Lesley Alderman
New York Times, June 4, 2010

To the list of letters that produce a groan when they arrive in your mailbox — a jury duty summons, past-due tax bills — add this one: a “dependent audit.”

A dependent audit comes from your employer, who wants proof that the people you’re carrying on the company health plan really are your dependents. If you can’t prove they are, the company will drop them.

The goal is to ferret out children who are over age 18 and not in school, ex-spouses, sometimes even nieces or nephews — people, in short, who do not meet an employer’s definition of dependent.

If your company does not already conduct these audits, chances are it eventually will. And while it may strike you as an annoyance, do not ignore this task. Otherwise, eligible dependents could lose their health coverage.

From an employer’s perspective, audits make good business sense. Health care costs have been rising by 5 to 10 percent a year for over a decade, and employers want to contain those costs.

An audit of a 10,000-person employer will typically uncover 200 to 500 ineligible dependents, said John Fazio, a senior consultant with the employee benefits firm Towers Watson. Removing these people, who cost a company an average of $2,100 a head, translates into annual savings of $420,000 to $1.05 million a year for the employer.

Dependent audits have been around for a more than a decade. But they have become popular in the last few years, as employers desperately sought ways to trim their health care budgets. This year 69 percent of large companies plan to conduct a dependent audit, up from the 55 percent that planned to do so in 2008, according to a March survey by Towers Watson and the National Business Group on Health, a nonprofit organization of large employers.

The New York Times Company is currently conducting such an audit of its nonunion employees. According to a company spokesman, the audit will help the Times Company “preserve enrollment accuracy” and “control claim and premium costs.”

From the employees’ perspective, such audits are at best an annoyance, forcing them to gather paper work proving, say, that a child who had been covered for years remains eligible. At worst, an audit can be a wrenching and costly experience when a worker’s dependent is found to be ineligible and has to get insurance elsewhere. What is more, a worker could become liable for the money that an employer paid out for a spouse or child who should not have been on the plan.

And, as audits have become more common, the process for employees has become more onerous.

“It used to be the honor system,” says Michael Smith, the chief executive of ConSova, a dependent auditing company.

Just five years ago, employers typically asked that you sign an affidavit stating that your dependent was eligible to be on your plan.

“Now, they want documentation,” Mr. Fazio said. “It’s a more diligent process.” That means you may have to dig up birth and marriage certificates, bank statements, divorce agreements and other documents that prove your child or spouse are legal dependents.

If you have not yet had the pleasure of a dependent audit, or have just received your first demand for documentation, here is what you will need to know.

VERIFY ELIGIBILITY Before an audit strikes, make sure your dependents are indeed eligible for coverage. An audit typically finds that 2 to 11 percent of dependents do not meet a company’s criteria for coverage.

“Employees often have a broad view of family,” Mr. Fazio said. “We had one employee who was covering a neighbor’s child because he considered himself the surrogate father of the child. He meant well, but the child was not legally entitled to be on his plan.”

The single largest group of dependents who end up being dropped is children over age 18 who are no longer in school, said Dan Priga, head of Mercer’s health and benefits performance audit group.

Starting Jan. 1, children under age 26 will be eligible for coverage under the new health care law, regardless of their educational status. But if you get audited between now and the open enrollment health care sign-up in the fall — and you have an adult child not currently eligible — there is a good chance he or she will be dropped.

According to a Towers Watson survey, 78 percent of employers said they would not extend health care coverage to children before the Jan. 1 start of the new federal rule. After that, dependents under 26 can be part of your health plan, as long as they don’t have a job that offers insurance. You will be able to sign them up this fall.

Also, be aware that some companies require that dependents with access to their own insurance rely on that policy as their primary plan. For instance, an employer may require that spouses who can get insurance through their jobs use it as their primary policy. Or an employer may require retirees and their dependents who are also eligible for Medicare to use the government plan as their primary coverage, said Mark Scherzer, a health care lawyer in private practice in Manhattan.

“An employer that discovers the existence of other primary coverage through an audit may stop paying all or part of a beneficiary’s bills and insist that you return the money that was incorrectly paid,” Mr. Scherzer said.

“I’ve lately gotten about a case a week from a retiree whose company plan wants to take back money they had spent on a Medicare eligible member,” Mr. Scherzer said. “I have one client who was on his wife’s plan and never signed up for Medicare Part B,” he said, referring to standard Medicare medical coverage. “After an audit he got a letter that said he was now liable for hospital and doctor bills.”

Confused? You’re not alone.

Many workers who have dependents deemed ineligible during an audit had no idea they were violating any rules. The same goes for those who made mistakes about primary and secondary insurance. When in doubt, read the eligibility definitions in your summary plan description or call your employer’s human resources department and ask them to spell out the rules.

RESPOND QUICKLY AND ACCURATELY Typically you have 30 to 45 days to respond to a letter requesting that you verify the dependents on your plan. Most companies also offer an amnesty period, Mr. Priga said.

If it turns out you are covering someone you should not be and you come clean during amnesty, your company will probably not hold you liable for the overpayment. But if you go past the grace period, “it’s within the company’s right to request that you pay them back,” Mr. Scherzer said.

And even if you are within the letter of the law, if you miss the deadline your company will most likely drop even your eligible dependents from the health plan.

After all, cutting the costs of coverage is the whole point of this administrative exercise.

September 22, 2010
By Carla K. Johnson, Associated Press Medical Writer

The nation’s new health care law turns 6 months old Thursday and starts delivering protections and dollars-and-cents benefits that Americans can grasp. But it won’t affect all consumers the same way, which may cause confusion.

Q: Will everyone’s health insurance change on Thursday?
A: No. It depends on when your health insurance plan year starts. Many of the new requirements begin with plan years starting on or after Sept. 23. But if your plan year starts Jan. 1, as many do, that’s when the changes start. “Grandfathered” plans, those that existed before the law was enacted March 23 and which remain essentially unchanged, must meet only some of the requirements. New plans and those with significant changes in benefits or out-of-pocket costs must comply with even more changes in the law.

Q: How do I know how my health plan fits in all this?
A: If you get insurance through work, ask your employer about any changes. If you buy insurance yourself, call your insurance company.

Q: What are some of the new benefits?
A: Free preventive care, for one. Some people will no longer have to pay copays, coinsurance or meet their deductibles for preventive care that’s backed up by the best scientific evidence. That includes flu vaccines, mammograms and even diet counseling for adults at-risk of chronic disease.

Q: Are there exceptions?
A: Free preventive care isn’t required of existing health plans that haven’t changed significantly, those “grandfathered” plans we mentioned earlier. New plans, and those that change substantially on or after Sept. 23, must provide this benefit.

Q: What other changes start Sept. 23?
A: If you go to an emergency room outside your plan’s network, you won’t get charged extra. Patients will be able to designate a pediatrician or an ob-gyn as their primary care doctor, avoiding the need for referrals that are required by some plans.

Q: I’ve heard lifetime limits are being eliminated. What does that mean?
A: Millions of Americans have insurance that sets a cap on what their insurance will pay to cover their medical costs over a lifetime. The caps have left very sick patients with medical bills topping $1 million or $2 million high and dry. These lifetime limits will be eliminated for plans issued or renewed on or after Sept. 23. Those who have maxed out because of the caps but remain eligible for coverage must be reinstated on the first day of the plan year that begins on or after Sept. 23.

Q: What about annual limits?
A: Plans issued or renewed on or after Sept. 23 can’t have annual limits lower than $750,000. Annual limits will be eliminated entirely by 2014.

Q: Are there exceptions?
A: Employers and insurance companies can apply for waivers for so-called “mini-med” plans that offer limited benefits. The intent of the waivers is to allow these low-cost plans to exist so that people don’t lose their health coverage when premiums go up.

Q: Any changes that affect parents?
A: Insurers can no longer deny coverage to children with pre-existing conditions. Also, parents can keep their adult children on their health plans until age 26.

Q: Is it true that some insurers will no longer sell child-only policies in some states?
A: Companies in some states have said the new requirement to insure children with pre-existing conditions will lead to unpredictable costs. Their decision to stop selling such policies won’t affect existing plans. Most children are covered under family insurance plans. The trade group America’s Health Insurance Plans estimates about 8 percent of all plans sold on the individual market that cover one person are for people under age 18.

Q: Are there other consumer protections?
A: The law bars insurers from canceling policies retroactively when a person gets very sick and runs up high bills. Insurers still will be able to rescind policies in cases of fraud and intentional misrepresentation. But they can’t cut you off when you need coverage most for a capricious reason.

Q: Why Sept. 23?
A: That’s six months after President Barack Obama signed the law. Many provisions were scheduled to start six months after enactment.

Q: Are these changes likely to raise health insurance premiums?
A: The Obama administration says the new benefits will raise premiums by no more than 1 to 2 percent. Benefit consulting companies say the impact will be in the single digits, but may vary from plan to plan.

About WestLake Financial Group, Inc.

Established in 1991, WestLake is a leading HR consulting and employee benefits solution provider.  By utilizing technology and personalized expertise to provide clients web based internet solutions, claims administration, traditional broker services, consulting services, outsourced services and call center support, WestLake allows clients to focus on core human resource activities.  For more information on WestLake and the services they offer, please visit www.westlakefg.com.

“We have been extremely pleased with our relationship with the WestLake Financial Group, Inc.” says Keith Travis, Murray Calloway County Hospital Vice President of Human Resources.  “They have brought to us the latest advances in technology and data management while maintaining a high level of personal contact and service.  We view WestLake as our strategic partner in managing the delivery of benefit services to our customers, namely, the employees of Murray Calloway County Hospital.”

About Murray-Calloway County Hospital

Murray-Calloway County Hospital (MCCH) is a public, not for profit community hospital located in Murray, Kentucky serving Western Kentucky and Northwest Tennessee. There are 65 physicians representing approximately 26 specialties. MCCH employs nearly 1,000 people and has 105 acute care beds and 226 long-term care beds. MCCH prides itself in providing quality care to its patients and has been consistently recognized for this through patient surveys. MCCH utilizes Press Ganey, the leader in providing health care satisfaction measurement and improvement, and ranks above the average for Press Ganey reporting hospitals in guest satisfaction.

About WestLake Financial Group, Inc.

Established in 1991, WestLake is a leading HR consulting and employee benefits solution provider.  By utilizing technology and personalized expertise to provide clients web based internet solutions, claims administration, traditional broker services, consulting services, outsourced services and call center support, WestLake allows clients to focus on core human resource activities.  In July 2004, several of WestLake’s core products and services, BenefitsTalk™ (online enrollment), FSA Administration, COBRA Administration and Billing Reconciliation, received the American Hospital Association’s exclusive Benefit Outsourcing Technology endorsement.  For more information on WestLake and the services they offer, please visit www.westlakefg.com.

About Fairfield Medical Center

Located in Lancaster, Ohio, Fairfield Medical Center was established in 1916 and has continued to grow since then to become the modern, not-for-profit healthcare organization is today.  Fairfield Medical Center is represented by more than 2,116 employees, who all work together to ensure the ongoing success in meeting the healthcare needs of their Community. To improve upon its delivery of healthcare to the various communities it serves, Fairfield Medical Center has established affiliates and off- campus locations to allow for greater accessibility and enhanced services.  For more information on Fairfield Medical Center and the services they offer, please visit www.fmchealth.org.

About WestLake Financial Group, Inc.

Established in 1991, WestLake is a leading HR consulting and employee benefits solution provider.  By utilizing technology and personalized expertise to provide clients web based internet solutions, claims administration, traditional broker services, consulting services, outsourced services and call center support, WestLake allows clients to focus on core human resource activities.  In July 2004, several of WestLake’s core products and services, BenefitsTalk™ (online enrollment), FSA Administration, COBRA

Administration and Billing Reconciliation, received the American Hospital Association’s exclusive Benefit Outsourcing Technology endorsement.  For more information on WestLake and the services they offer, please visit www.westlakefg.com.

It has been called the next generation of software, the .NET platform. The .NET platform has advantages for both the developer and users of the internet.  .NET makes it possible for the user to access any of their accounts, any of their preferences, email accounts, data and common web services from any platform at any time. The strongest advantage of .NET is the processing and loading time of websites. Significantly faster than the classic ASP site, .NET has eased the concern of loading time, reliability and security allowing users to sustain a high level of comfort and confidence in their online communication.

About WestLake Financial Group, Inc.

Established in 1991, WestLake is a leading HR consulting and employee benefits solution provider.  By utilizing technology and personalized expertise to provide clients web based internet solutions, claims administration, traditional broker services, consulting services, outsourced services and call center support, WestLake allows clients to focus on core human resource activities.  In July 2004, several of WestLake’s core products and services, BenefitsTalk™ (online enrollment), FSA Administration, COBRA

Administration and Billing Reconciliation, received the American Hospital Association’s exclusive Benefit Outsourcing Technology endorsement.  For more information on WestLake and the services they offer, please visit www.westlakefg.com.

Mr. Metz went on to say that, “With the expertise of the WestLake team involved in customizing the screen design for our benefit options, they also developed an in depth knowledge of our plan details.  This was immensely beneficial as WestLake began the claims administration for our medical plan. Changing TPAs can be an adventure; however, the transition to WestLake was remarkable.  Everyone has been timely, responsive and accurate.”

About Ephraim McDowell Health

Ephraim McDowell Health is an integrated healthcare delivery system that serves six counties in central Kentucky. At the core of the system is Ephraim McDowell Regional Medical Center, a 187-bed, not-for-profit hospital that was established more than 110 years ago. The Ephraim McDowell Health system also includes Fort Logan Hospital in neighboring Lincoln County (Stanford).  With over 1,500 employees (1,300 of them are benefits eligible), Ephraim McDowell Health is one of the largest employers in the central Kentucky area.

About WestLake Financial Group, Inc.

Established in 1991, WestLake is a leading HR consulting and employee benefits solution provider.  By utilizing technology and personalized expertise to provide clients web based internet solutions, claims administration, traditional broker services, consulting services, outsourced services and call center support, WestLake allows clients to focus on core human resource activities.  In July 2004, several of WestLake’s core products and services, BenefitsTalk™ (online enrollment), FSA Administration, COBRA Administration and Billing Reconciliation, received the American Hospital Association’s exclusive Benefit Outsourcing Technology endorsement.  For more information on WestLake and the services they offer, please visit www.westlakefg.com.

Along with the online enrollment, benefit information, disease management data, premium rates and custom- tailored eligibility information, participants also are afforded online and offline help in the process. WestLake’s Customer Service Call Center and an online Live Personal Assistant aid employees by answering specific questions and familiarizing them with the enrollment process.

Karen Knuth, human resources manager at Lakeland Regional Health System stated, “It was hard for me to believe we could do the enrollment over the telephone or online. There would be no paper and there was nothing to key into a system.  It was all done by the push of a button.  It was phenomenal.”

With more than 25 years of experience, WestLake Financial Group, Inc. is a leading HR consulting and employee benefits solution provider.  By utilizing technology and personalized expertise to provide clients web based internet solutions, traditional broker services, consulting services, claims administration, outsourced services and call center support, WestLake allows clients to focus on core human resource activities.  In July

2004, several of WestLake Financial Group’s core products and services, BenefitsTalk™ (online enrollment), FSA Administration, COBRA Administration and Billing Reconciliation, received the American Hospital Association’s exclusive Benefit Outsourcing Technology endorsement.  For more info rmation on WestLake Financial Group, Inc., please visit  www.benefitstalk.com.

WESTLAKE FINANCIAL GROUP CEO INDUCTED INTO ENTREPRENEURSHIP HALL OF FAME

Paul Burt Attains Prestigious Honor

Buffalo Grove, IL (March 10, 2004) WestLake Financial Group, Inc. President & CEO, Paul J. Burt, was inducted into the prestigious Chicago Area Entrepreneurship Hall of Fame in a ceremony on February 24 at the Chicago Hilton and Towers.  Burt was recognized for his innovation, vision and entrepenurial expertise in guiding WestLake Financial Group, Inc.

The Chicago Area Entrepreneurship Hall of Fame recognizes leading entrepreneurs in the Chicago area who serve as role models for University of Illinois – Chicago students. It builds relationships among the University and top entrepreneurial business owners by providing recognition, networking, publicity, and other support.  Honorees are chosen through an arduous selection process by a distinguished panel of judges.  Burt was recognized for leadership and innovation and for WestLake’s continued growth and client  focus.

Burt is a pioneer in the field of human resources outsourcing and benefits administration.  WestLake has redefined the delivery of benefit information to employees through technological advances including a proprietary online benefits portal, allowing for customization and a unique benefits experience for each client.  This portal includes  an automated environment  for an employer’s benefit enrollment event.  WestLake also provides online integration of Section 125 account administration, medical claims administration, COBRA administration, a dedicated call center, applicant tracking services, FMLA tracking, employment verification, health risk assessments, benefits consultation and design, disease management, a proprietary issue tracking system, as well as other services.

“WestLake is committed to providing the highest quality solutions for its clients and their employees,” said Paul Burt, President of WestLake.  “WestLake’s continued development of unique outsourcing services has created significant time and cost savings for our client partners.    We are also widely recognized in the industry for our flexibility, creativity, and superior customer service. This award further validates the innovation that our program brings to the human resource arena.”

WestLake has successfully provided consulting and technology solutions to human resource departments of middle market and large employers since 1991.   WestLake’s offerings include a unique combination of benefits technology, outsourcing, consulting, and claims administration services.   This combination creates signigicant cost savings and improved employee service to the over 85 employer groups WestLake partners with today.