Large employers looking for ways to reduce health-care costs are finding big savings right under their noses: ineligible dependents being carried on their health insurance plans. With potential savings running into millions of dollars for larger employers, the search for the ineligible is becoming as much a part of reducing health-care costs as mail-order prescription services.
Consider the experience of Ford Motor Co. Concerned about soaring health-care costs, Ford initiated a pilot program four years ago that was designed to determine whether everyone receiving health-care benefits was properly enrolled in the automaker’s insurance plan. What Ford found was startling: tens of thousands of ineligible dependents were receiving benefits. Since 2000, Ford has removed about 50,000 of these ineligible people from its health-care rolls--roughly 10 percent of the 560,000 active employees and their dependents, retirees and surviving spouses who receive medical benefits in the United States. Though Ford will not reveal its overall savings, eliminating ineligible beneficiaries has put a sizable dent in its $3.2 billion annual health-care bill.
"We definitely think it’s a value-added part of our business and something we are going to continue," Ford spokeswoman Becky Bach says. "What we found was that sometimes people were divorced and their ex-spouses were continuing to receive benefits. Other times, their children got married and were no longer eligible for benefits but continued to receive them. It happened in a variety of situations." These days, she says, "we are continually auditing our health-care recipients."
Ford’s initial program involved two phases, which have been duplicated in subsequent years. The first step is an amnesty phase, in which letters go out to all employees explaining that they could be asked to reimburse Ford if future audits show that ineligible dependents are making claims and being covered by company-paid premiums. The letters lay out basic information about eligibility and give employees a chance to update their records. Phone banks are set up to answer questions for both hourly and salaried workers. The second phase is a full audit to determine whether relatives of employees have been improperly receiving health-care benefits and, if so, for how long. Penalties in the form of payroll deductions are involved.
"If we find an ineligible dependent, the employee is required to repay the company for their health-care coverage," Bach says. That means they’re on the hook for both the cost of premiums and the claims that Ford paid. The company has "experienced significant savings," Bach notes.
With spiraling health-care costs sometimes running into the double digits and threatening the financial well-being of companies, the problem of ineligible dependents, while costly, is usually overshadowed by even larger concerns. More commonly cited factors driving up health-care costs are government mandates that require fixed levels of care, the aging workforce, pricey new drugs, and the expense of providing care to uninsured Americans, which gets passed along to both workers and employers through premium hikes. But weeding out employees and their dependents who are improperly receiving health benefits is a relatively direct way to drive down costs in an area where every dollar counts and each additional dependent can add thousands of dollars to an employer’s insurance bill. Towers Perrin estimates that during 2004, employers will pay an average of $3,768 per individual employee for all types of health plans. But the insurance bill jumps to $7,524 for an employee plus a dependent and up to $10,656 for family coverage that includes more than one dependent.
Given those costs, advocates say, shaving off unqualified dependents can add up fast. Jim Bevins, director of health-care services at Budco Inc., a Highland Park, Michigan, firm that helps employers conduct such audits, estimates that from 10 percent to 15 percent of the dependents who turn up in the audits are ineligible. Most people aren’t trying to beat the system, he says. They just don’t know the rules. The program that Budco has developed to monitor eligibility lists works for both large and small companies, but probably works best for companies that have been in business for more than 50 years and employ more than 20,000 people, Bevins says. Those parameters describe companies that have typically paid most of their employees’ health-care premiums. If employees have not been responsible for a significant part of the cost, they have little motivation to stay current with the rules on dependents. "If there is a cost to employees to cover dependents, they are more motivated to remove them," says Bevins, whose company has contracts with dozens of Fortune 500 companies. "If there isn’t a cost, then they might not think about calling HR."
"In a lot of instances an employee might be obligated to provide
Tom Will, a vice president and national claims audit practice leader with Aon Corp., agrees that some companies can reap significant savings and are paying more attention to audits these days, thanks to the tough financial-reporting and accounting environment created by laws like Sarbanes-Oxley. "In general we are seeing an increased level in auditing, and that includes medical plans," he says. However, Will believes that companies are far more interested in bringing down costs by paying more attention to such basic controls as the design of medical plans, negotiated health-care-network discounts with providers and improved claims management.
Like Bevins, Will says that some companies are more likely than others to realize savings from uncompromising audits of their health-care plans. "Old-line paternalistic firms that may have had liberal eligibility rules to begin with" may face the biggest problem of carrying ineligible benefits recipients and thus are in the best position to reap big rewards from audits, he says. Companies undergoing complex mergers and acquisitions are also vulnerable if their respective health-care plans have different eligibility rules and cost-sharing requirements. Businesses in industries with high rates of turnover, like retail, are vulnerable as well because benefit records can’t quite keep up with who is no longer an employee, and thus no longer covered.
Will says it’s important for companies to stay on top of the problem and make sure everyone knows the rules. As an example, he cited a company, which he would not name, that found it had several employees whose dependents included underage female children who also happened to be unmarried parents. The dependents all had the same last names, and on the benefit rolls some appeared to be children of the employees "when in fact they were grandchildren and should not have been covered," Will says.
Dr. Abbie Leibowitz, executive vice president and chief medical officer for Health Advocate Inc., says workers may be confused by the changes that come as employers steadily try to drive down health-care costs. Companies have been pulling back their commitment to family coverage, with more and more organizations insuring just the employee or adding big premium increases for dependents, so that could be creating confusion, Leibowitz says. "Coverage for a spouse and dependents is either not offered at all, or if it is offered, the employee has to pay for it as an added--and very substantial--payroll deduction," he says. "Obviously, in this situation, many employees, either because they don’t realize what’s happening or because they can’t afford it, are not picking up their spouse’s or dependent’s coverage."
Bevins says the problem most often stems from bad or outdated information. Sometimes employees don’t know that the eligibility rules change as their children pass into adulthood. For example, companies may have allowed adult children as old as 23 or 25 to remain on health-care rolls as long as they were in college, but then changed the rules, lowering eligible ages by a year or two or refusing to even allow coverage for college students. Another typical problem occurs when there is a divorce. "In a lot of instances an employee might be obligated to provide health-care benefits to an ex-spouse," Bevins says. "But the employer doesn’t have that obligation."
Employers can take steps to protect themselves at the beginning of the benefits process. Bevins suggests they require documentation when employees sign up dependents for benefits.
"If an employee wants to add a dependent, they just add them. It’s kind of an honor system," he says. To ensure that the dependent really is eligible, companies can ask for a driver’s license, birth certificate, adoption papers, marriage license or the front page of a tax return.