Eligibility audits: detection helps rein in costs; It's easy for companies to earmark benefits for people who are actually ineligible to receive them. Eligibility audits can be invaluable in preventing such leakage, but relatively few organizations are using them.

You've seen it often: Elected officials stand in front of a battery of microphones talking about how they intend to pare excess costs from government entitlement programs by eliminating "waste, fraud and abuse." While they often make exaggerated claims about what can be accomplished in that regard (and seldom is there a lot of specificity), it is also frequently true that savings can be found--if you know where to look.

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Could that description apply to your organization as well? Could corporate "entitlement" dollars be going to people who are not entitled to receive them? Look no further than your health plan. According to a recent survey by The Kaiser Family Foundation/Health Research and Educational Trust, in 2004 employers paid, on average, about $4,000 in health insurance premiums for single employees. Family coverage cost, on average, almost $10,000 in premiums. So, the question becomes, is there a way to reduce health plan costs independent of cutting benefits?

Yes, there is, and it's called eligibility management. Two years ago, a survey by the National Business Group on Health indicated that only 17 percent of employers have taken a good look at their eligibility management processes in a formal audit process. That percentage is rising, as companies are finding that reviewing eligibility determination and monitoring procedures can yield significant savings. For example, audits at The Procter & Gamble Co., General Motors Corp. and Ford Motor Corp. yielded reductions in the number of ineligible employee dependents by as much as 15 percent.

Here's a quick way to gauge whether you may have a problem--and an opportunity to eliminate excess expenditures. See if you can answer these questions:

* Who performs enrollment and eligibility update functions for your health plan?

* Does your summary plan description clearly define dependents and support your validation process?

* How quickly are terminations of employment reported to the various vendors?

* When is dependent and other insurance data collected? At initial enrollment only? Or, annually at re-enrollment? Or, some other time during the year?

* What proof of dependency (documentation) is required? (See sidebar, Proving Dependent Status.)

If you're unsure--or that those who have direct oversight of your health plans can't really shed any light--it's time to roll up your sleeves and perhaps get some help with the process. This is not to suggest that you are being taken advantage of by dishonest employees. While there may be some of that at work, the potential abuse of eligibility is high, given the complexity of plan requirements, as well as understandable concern by employees who want to maintain coverage for family members.

The most typical eligibility mistakes fall into two broad categories: People ineligible for coverage based on plan rules, and those rendered ineligible by a change in circumstances (also known as "qualifying events"). They are summarized in the box on this page.

Mistakes typically happen not because someone's asleep at the switch, but rather that everyone assumes that someone else is responsible for checking eligibility. Making matters worse, many administrators no longer automatically check dependent eligibility, thereby shifting the responsibility to the plan sponsor or an independent vendor.

So, what can happen when no one is watching? Here are some "real life" examples of eligibility-related issues revealed by some recent claims audits that could be brewing within your own organization:

* $200,000 was paid on claims for an ex-spouse who was maintained as an active dependent after divorce.

* Claims were paid under two different Social Security numbers for one employee; one showed active status, the other showed Medicare eligibility.

* A dependent child's future termination date was entered into the claims system as the maximum age for a full-time student; but no investigation was performed to confirm whether the dependent actually had full-time student status.

* Medicare payments were ignored because eligibility information showed the employee in question to be an active employee, not a retiree.

* The administrator did not perform plan-required pre-existing investigations. As a result, all conditions "are covered because the employer approved enrollment in the plan."

* Failure to reconcile enrollment numbers inflated monthly administrative fees.

So how do you avoid holding the bag under such circumstances? It may be easier than you think. For starters, at least once a year, employers should conduct a participant status reconciliation to check active eligibility, special classification eligibility and terminated status. Along with this process and identification of overpaid claims, employers should consider an operational review to ensure effective procedures are documented and eligibility is communicated to the appropriate vendors.

And, of course, it must be clear to all vendors who is responsible for what. Often an employer conducts enrollment and provides eligibility data to the administrator, relying on the administrator to monitor ongoing qualifications such as full-time student status and coordination of benefits.

Claims audits have shown a trend among administrators of shifting responsibility for all verifications to the employer; so it's important to clarify who will take on required tasks and who will perform the necessary investigations. These issues should be clearly defined in the administrative services only (ASO) agreement to avoid misunderstandings in day-to-day operations.

Too often, the specifics are ignored under general terms. The employer should ask who checks eligibility in the following circumstances: preexisting investigations; verification of prior creditable coverage; full-time student status; disabled dependent status; Medicare entitlement due to age or disability; court-ordered dependent coverage; and other cover-ages (such as group or third-party).

Once an administrator or an employer performs enrollment, it's important to understand and clarify the processes used to prevent ineligibles from entering or remaining on the rolls. Some basic questions to ask--and resolve--include:

* Are enrollments conducted at a central location or at multiple sites?

* What documentation is required for enrolling each dependent?

* How is eligibility data transferred to the administrator? How often? In what format?

* Is information collected about employees only? Or, is information about dependents (including Social Security numbers) included?

* What identifiers are used for employees and dependents? Do they match the relationship codes used by the administrator, or is reformatting required?

* Do new electronic updates overwrite all previous entries? If yes, how does the administrator maintain their special notes?

* How are adds, deletes and changes handled? What about overpayments due to retroactive terminations?

* Who performs data reconciliations and reports discrepancies to the employer for investigation or correction?

* Are there time limitations for administrative corrections? Are overpayment recoveries tracked through resolution?

These and other important questions about eligibility rules, determination and monitoring procedures can be addressed in an eligibility audit performed by a qualified external vendor--assuming you've laid the groundwork (see sidebar on page 43).

Eligibility audits offer a variety of approaches to meet employer needs and objectives. Services can be tailored to provide results that will enable the employer to:

* Estimate the number of dependents enrolled under the plan without adequate documentation.

* Confirm the effectiveness of current procedures.

* Identify anyone improperly receiving dependent benefits.

* Establish procedures to offer a "grace period" for employees to review and update dependent records prior to conducting a full audit.

* Assess internal procedures and/or processes for data exchange with the claims administrator.

Eligibility audits don't have to be seen as setting the stage for lowering the boom on "waste, fraud and abuse." Rather, they give employers the chance to introduce procedures and policies that place the plan in a better position to provide benefits at reasonable costs for employees and eligible dependents. And, not insignificantly, eligibility audits can lead to substantial savings on healthcare dollars.

RELATED ARTICLE: Gearing Up For An Eligibility Audit

To gain the most benefit from an eligibility audit, several steps should be taken. The first is both a condition and an action item: The plan eligibility provisions must be clearly stated and communicated to employees; nobody can be held accountable for compliance with rules that they don't know about or can't understand.

Here are four more key requirements for a successful audit:

1 Methods to request, collect, maintain and update dependent documentation must be detailed. The process must identify the responsible party(ies) and be communicated with each service provider (claim payer, employee assistance program, etc.).

2 Service providers must acknowledge their role and be held accountable for their compliance.

3 Employers need to be prepared for a level of employee complaints; exceptions should not be granted.

4 The audit scope should identify a target (all dependents, only new ones, etc.) and proposed recovery methods.

RELATED ARTICLE: Proving Dependent Status

"Trust, but verify," the mantra from the Cold War in the 1980s, is equally applicable to health plan eligibility, where a formal listing of documentation requirements is essential. Following are some examples of documentation requirements for dependent situations:

Marriage: Copy of the certified marriage certificate.

Birth: Copy of the certified birth certificate.

Adoption or placement for adoption: Court order signed by the judge.

Full-time student status: Birth certificate (if not already on file) and a copy of current semester official class schedule reflecting full-time student status or signed statement from the registrar or dean of students verifying full-time student status or copy of the current semester tuition bill showing proof of payment for full-time student status/credit hours.

Legal Guardianship: Copy of the legal guardianship documents and a copy of the certified birth certificate.

Temporary Guardianship: A written document signed by both parents that must include the child's name, date of birth, date of guardianship placement and an expiration date (within six months of placement) and a copy of the certified birth certificate. Additional documents may be required depending on the parental circumstances.

Involuntary Loss of Dependent Coverage: Certificate of coverage from previous employer and marriage certificate, if not already on file.

Disabled Dependent Child: Current written statement from the child's physician indicating the child's diagnoses that are the basis for the physician's assessment that the child is currently mentally or physically handicapped (as defined by your plan document).

RELATED ARTICLE: Key Categories For Potentially Ineligible Dependents

Do Not Qualify Under Plan Rules

Grandchildren or other extended family dependents with no legal guardianship

Unmarried partners with no recognized relationship under the plan

Children of live-in partners with no legal relationship

Children not residing with the participant in a parent/child relationship

Married children

Ineligible Due To Qualfying Events

Divorced spouses

Stepchildren following divorce of the natural parent

Overage dependents (not disabled or full-time students)

MaryAnne L. Watson serves as The Segal Co.'s National Practice Leader for Claims Audits and specializes in claims analysis and adjudication, group health benefits analysis and audits. She can be reached at 602.381.4031 or [e-mail].