Dependent Audits: A Way to Lower Health Plan Costs

By Rita Zeidner
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February 2009 CoverBudget officials at the Navy Federal Credit Union want to do more to reduce health plan expenses than simply shift costs to employees. One way to rein in costs: Make sure health care dollars are spent only on employees and dependents entitled to coverage.

In 2007, Navy Federal asked 150 randomly selected employees—out of 7,200 worldwide—to show proof that covered family members were eligible. Like other employers that have conducted such audits, Navy Federal found some ineligible individuals. Removing them from coverage reduced the organization’s annual health expenditures by $15,000.

Audits can be a powerful way to reduce health plan waste. It’s not uncommon for 5 percent to 15 percent of a medical plan’s enrollees to include workers’ ex-spouses, grown children, grandchildren or others not typically qualified for benefits, according to Howard Gerver, president of HR Best Practices, a health-cost auditing firm based in Franklin Lakes, N.J. Culling ineligible enrollees may help an employer stave off future benefits cuts or the need to raise premiums and co-payments, he says.

Navy Federal, based in Vienna, Va., with branches worldwide and some $40 billion in assets and reserves, conducted its first dependent audit in 2007 after giving a "heads up" to all employees during open enrollment season late the previous year. As the first step of the audit, the 150 selected employees were sent letters requiring proof such as marriage licenses, children’s birth certificates, adoption papers or other documents showing that family members they had signed up for benefits were qualified.

The goal, says Nancy Astorga, Navy Federal’s vice president for benefits, was not to uncover fraud but to identify weaknesses in plan management that added unnecessary costs. For instance, when auditors discovered an employee’s niece was enrolled in the plan, they took a closer look at eligibility rules. Turns out, the rules weren’t as clear as they could have been.

There was "ambiguity in the various plan documents, and the audit helped us identify what needed to be tightened," says Astorga. She followed up with an employee education campaign and new materials explaining who is eligible for coverage.

Dependent audits also drove savings at Ford Motor Co., helping close what had been a huge compliance gap linked to college-age dependents. Investigations conducted during the past eight years identified tens of thousands of dependents ages 19 to 24 receiving Ford’s medical benefits even though they weren’t taking enough college classes to qualify, according to spokeswoman Marcey Evans.

Ford now audits employees with college-age dependents annually, removing those who don’t qualify and demanding repayment from employees for expenses related to coverage of ineligible dependents. Workers with younger dependents also are audited, but less frequently.

Audits are labor intensive and costly, even for a small sample. And they can stir resentment among workers who are already besieged by benefits cutbacks or who wonder why the company no longer takes them at their word. Nevertheless, Ford’s results are unassailable: In 2000, the average employee family health insurance contract included four members. Now, it’s down to two.

The intent was not to frustrate employees but to make them aware of the rules, Evans writes in an e-mail. "The data show that we have been very consistent over the last two years with two members per contract. So the [audit] process is working."

Despite Navy Federal’s more modest audit findings, Astorga maintains that such audits pay for themselves, even when companies such as hers choose not to require repayment from ineligibles. "Investigators won’t find broad abuse," she says, but when it comes to financial management, she adds, you can’t have too many checks and balances.

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