Eligibility Audits Can Pay Big Dividends

If you have ever catered a big event, you know the feeling that you might be paying for people who were not "officially" invited. 

You should get the same feeling if you are managing a medical benefit plan.  As plans grow bigger, they eventually pay for coverage for people who are not eligible to participate.

The reasons might be innocent.  Life keeps changing. A spouse becomes an ex-spouse, a child gets married, your son, who is never moving out of the basement, actually gets a job with coverage, and in the process a covered dependent becomes ineligible. And, for various reasons, no one notifies the plan.

The Wall Street Journal reports that more employers are scrutinizing employees' health-insurance dependents in order to weed out ineligible beneficiaries. 

The economics seem compelling. Typically, companies find that between 3% and 8% of plan participants or their dependents are ineligible.   So, if your plan has 1,000 participants, and pays premiums of $7,612 per participant, identifying 3% of those as ineligible could save you $228,000.  And 3%-8%  of dependents (at $2,100 each) adds up to $63,000 - $168,000 in savings. So, an eligibility audit looks like a financial no-brainer. (And these are old cost estimates: Employers paid an average of $2,100 annually per dependent in 2009, according to consulting firm Mercer. Estimates for 2010 were $7,612 in health-care premiums on average per employee, according to Aon Hewitt.)

But there is a human cost to be considered. Which scenario is preferable?

    1) Based on an eligibility audit your plan rejects an ineligible dependent, and he has an opportunity to purchase COBRA or other coverage before he gets seriously ill, or

    2) Your plan audits eligibility only after a major claim is submitted, and discovers the dependent is ineligible; you deny the claim, and it is too late for him to secure COBRA or other coverage.

You can blame the participant, because it is his responsibility to notify the plan of any eligibility changing events. But the plan can do more, before the personal impact is catastrophic.

You should do something to uncover ineligibles, whether you use your regular auditor, an eligibility audit firm, or conduct a periodic in-house review. And, you should regularly remind your participants of key eligibility requirements, and their exposure to enormous medical bills if an ineligibility is not addressed before a claim is incurred.

Consider This

Maybe an eligibility audit can cut your medical costs by 3% - 8%. That's real money, and it is recurring savings. You don't need to audit 100% of your participants. And you don't need to commit major resources to the audit. Pick a reasonable budget, and see what an audit uncovers. If the program is properly designed, it could save you far more than it costs.

Questions/comments?  Call me at 585-204-7085, or email This email address is being protected from spambots. You need JavaScript enabled to view it..