Cleaning Up the Eligibility Rolls

     The district did two things. First, it performed what’s called a dependent eligibility audit, a process meant to determine whether such people as employees’ grandchildren, boyfriends or ex-spouses were improperly receiving health care benefits through the district. Once identified, the ineligible dependents were removed from the district’s health care rolls. Then, the district clamped down with a new policy that required spouses to use their own employer’s health care coverage, not the district’s. Taken together, those two steps slashed costs in a year when there is mounting pressure on employers to cut back.

     “The main driver is looking for opportunities to cut costs,” says Edwin S. Skinner, executive director of employee benefits and risk management at the Cleveland Metropolitan School District. “We verify through the audit which dependents are eligible.”

     Most employers today have exhausted the few options that produce dramatic, quick and measurable health care savings. Shifting costs to employees through higher prescription drug co-pays or health care premiums can only take an employer so far before health care becomes more cost than benefit to employees. And redesigning benefit packages can require months of planning and a long-term commitment before any savings are realized.

     Dependent eligibility audits, however, have become an increasingly popular way for employers to achieve immediate health care savings, consultants say.

     “I liken it to the last frontier,” says Dan Priga, a principal in the Pittsburgh office of consulting firm Mercer. “You can go through plan changes, adjust contribution rates. Now it’s ‘Are we really providing benefits to those who should have them?’ ”

     Priga says demand among employers for audits in 2008 has doubled from last year, when Mercer consulted on 12 audits. This year, Mercer has plans to perform 25 audits, he says.

     Savings for self-funded employers are hard to quantify, but Priga says the audits usually reduce the number of dependents by between 3 percent and 8 percent. Other consultants said they’ve seen clients’ dependent enrollment dropped by as much as half.

     Employers with the most generous health care benefits are often the ones carrying the most dependents. Not surprisingly, then, dependent eligibility audits were first used by the Detroit automakers about seven years ago, says Mark Rucci, a senior vice president with Gallagher Benefit Services in Princeton, New Jersey. That was when many companies still had free coverage for dependents.

     General Motors began by auditing small pockets of the 1 million people who are currently on its health care rolls. The goal was to get a snapshot of the percentage of dependents receiving health care benefits when they shouldn’t have been. Often those dependents included retirees whose spouses were deceased, children who were in college and too old to be on the plan, grandchildren whose primary caregiver is a grandparent, and employees whose divorced spouses, girlfriends or boyfriends were on the plan.

     Last October, GM audited its salaried workers. The company plans to audit its hourly workers later this year. GM, which spent $4.8 billion last year on health care, doesn’t yet know how much it will save. But its auditor, Highland Park, Michigan-based consultant Budco, estimates that it saves at least $1,000 per person dropped.

     “Where we can reduce our costs we want to do that,” GM spokeswoman Michele Bunker says.

     The audit itself is straightforward. The school district in Cleveland began by first explaining to employees what it was doing and why. Skinner says the reaction largely was positive. Most employees agreed with the premise that if only eligible dependents received health care, overall health care costs would go down. Crucial to the district’s success was that the decision to conduct the audit was agreed upon during the district's most recent labor contract talks with its unionized teachers.

     The district hired a company, Impact Interactive of Suwanee, Georgia, to conduct the audit. Employees were told to answer a questionnaire on a secure Web site by a certain date or risk having their dependents eliminated from the plan. The questions, fine-tuned in planning sessions with the school district, were designed to validate whether an employee’s dependents were eligible. Is your dependent a grandchild? How old is your daughter? Are you single, married or divorced?

     Those employees whose dependents were eligible then had to prove it. They were required to bring in documents—birth certificates, tax forms, student transcripts—to verify their relationship to a covered dependent. This part of the process can stir the most resentment among employees.

“There’s an employee-relations aspect to these projects,” says Rucci, who notes that employees tend to say things like “I’ve worked here for 20 years and now you don’t trust me? Now you want me to show you proof I’m married to my wife? Why do I have to show you personal information?”

     He adds: “If you really feel that strongly about your personal information, don’t ask me to write a check to cover your family.”

     In Cleveland, fewer than a dozen employees felt disgruntled enough by the process that they chose to forfeit dependent health care, Skinner says. The school district, which is fully insured and pays premiums for the nearly 9,000 people covered in its health plan, removed 1,541 people from its health care rolls. The district saved $2.2 million or $1,460 for every person removed.

Most employers do not try to recoup the cost from ineligible dependents they previously covered, says Susan Johnson, a senior consultant with Watson Wyatt in Chicago. Amnesty is often granted in a letter signed by the employee that lists their dependents who were erroneously covered and restates the definition of who is eligible for health insurance, Johnson says.

     While the audit helped the school district determine eligibility, it also provided a way for the organization to implement a new policy: Spouses of district employees who were able to obtain health coverage through their own employers were no longer eligible for coverage by the school district. This change produced the greatest savings.

     This gets to an important point: Audits may not actually be necessary. Consultants say an employer can achieve savings by requiring employees to prove their relationship to a dependent when they first enroll in a company’s health benefits plan.

     “To really maximize return, we suggest employers look at their enrollment process for new employees,” Priga says. “If they don’t look at that, they could be looking to do this again at some point down the road.”

Since this article was first published in March, the number of beneficiaries removed by the Cleveland Metropolitan School District and its subsequent savings as first reported by Workforce Management have been updated to reflect a more recent and accurate analysis by the school district of its audit.

Workforce Management Online, March 2008 -- Register Now!