Business owners are often confused by changing healthcare regulations that determine how much coverage they need to provide employees. In order to keep costs under control, while staying compliant with the law, it’s a good idea to perform an annual healthcare audit.
While Congress continues to battle over the Affordable Care, its policies are still in place for business owners. The resulting increases in the cost of healthcare mean that every dollar must be spent wisely and correctly.
Keeping good employees means providing benefits that improve retention. But you don’t want it to cut too far into the bottom line. Business owners need to stay up-to-date with regulations without overpaying. A healthcare audit, as well as an audit of other benefits programs, can show you how to reduce these costs effectively.
The Rising Cost of Healthcare
In the U.S., most employees rely on employer-sponsored health care plans to manage their health and treat injuries and illness. Employers are able to provide that insurance at a lower price than individual plans. It’s also a tax-deductible expense for business owners.
The cost of healthcare, however, has risen dramatically over the last 20 years. Because of this rise in costs, many employers have had to reassess just how much of the financial burden they can carry. In order to reduce these costs, many businesses are asking employees to reduce the cost through education and lifestyle changes.
In addition, whether the employer covers all expenses or simply manages the plan, it’s an important tool for employee morale. Employers are increasingly required to offer health insurance plans for workers.
Although many employers have recently been spoiled for choice when it comes to recruiting, that tide is turning. For businesses seeking educated and experienced workers, providing a good benefits program can make the difference when it comes to onboarding talent.
According to a December 2017 report from the Bureau of Labor Statistics, providing health insurance costs businesses an average of $5.65 per employee hour. In fact, it made up 11.6 percent of employee compensation.
That’s quite a large percentage, considering. Along with reducing your own costs of doing business, employees responsible for a portion of their health insurance costs may appreciate a healthcare audit that weeds out unnecessary and unused coverage. This can save both employees and their bosses a lot of money.
Self-funded vs. Fully Insured Plans
Many companies have made the switch to self-funded healthcare plans instead of fully insured plans. A fully insured plan charges a simple premium monthly based on risk factors assessed and plans chosen. A self-funded insurance program means the employer pays all the costs of healthcare services for its covered employees. Self-funding can save money, but it also means that the employer carries all the risk.
Self-funded plans require a third-party administrator (TPA) that provides access to health provider networks. They also pay claims from the employer’s healthcare fund. Although the TPA is responsible for providing a detailed statement of claims and services every month, employers are responsible for holding the TPA accountable for accuracy.
A third party healthcare audit can help you determine if a self-funded plan is right for you and your employees. Once the plan is in place, it can ensure that this fund is being spent correctly and accurately.
What to Review in a Healthcare Audit
Two of the most popular and effective healthcare audits are the Dependent Eligibility Audit and the Claims Audit. Employers can initiate both to immediately reduce healthcare costs, as well a reduce future plan costs.
The Dependent Eligibility Audit reviews all covered members and their dependents to make sure that ineligible family or household members or aren’t receiving medical treatment under the plan. Plan coverages vary for dependents, therefore an audit will assess that participants are in compliance.
A Claims Audit is a review of all claims against the plan. Therefore, it will identify accuracy in billing or errors in payments. An employer can request a 100 percent review of all claims, or a random sampling. Some TPAs have contract clauses that limit the number of claims that can be audited, however.
Dependent Eligibility Audit
A common healthcare audit that can be performed internally is the Dependent Eligibility Audit. The Society for Human Resource Management revealed that as many as 10 percent of dependents covered by employer healthcare plans aren’t eligible for them. As a result, a company footing the bill for divorced spouses and adult children can pay thousands of dollars a year more than it should.
Employers without much staff turnover can conduct an eligibility audit every two or three years. There are few steps you can take to ensure you and your employees aren’t paying for ineligible dependents:
1. Check the plan
Make sure that the eligibility requirements for dependents are the same in all your plan documents, summary descriptions, and contracts. The eligibility requirements should be clear.
2. Educate employees
Your employees should understand what makes a dependent eligible for coverage. Make sure human resource managers are educating new employees regarding the policy’s terms. Have existing employees check and update their dependent information list during annual renewals.
Life changes such as divorce or a death in the family are stressful. So, if your aware of an employee with a recent loss or qualifying life event, be diplomatic when asking them to update their dependent list.
3. Verify dependent information
Employers can add an optional safeguard against fraudulent access by requiring documentation for dependents. Require employees to provide proof of relationship docs, such as birth certificates and marriage certificates. Some employers may feel more comfortable instituting the policy to new hires only.
The ACA limits a business’s ability to remove dependents from coverage retroactively, even if they weren’t eligible. Employers can only retroactively cancel a dependent’s coverage if it was obtained by intentional fraud or misrepresentation. Even then, the employer must provide at least 30 days advance notice so the individual can obtain coverage elsewhere.
Professional Healthcare Audit
Self-funded insurance plans find a healthcare vital for proper administration. Many employee benefits consultants offer a full healthcare audit with the goal of reducing your costs and obtaining refunds or credits for overpayments. If your company doesn’t have the manpower to perform a self-audit, outsourcing may be the best solution.
Healthcare Audit for Self-Insured Plans
A healthcare audit that includes a claims audit can be time-consuming. But it can also identify any billing errors or fraudulent claims made on your plan. In many cases, you can receive cash or credits for errors and overpayments. You will also receive a full analysis that helps reduce costs in the future.
Since the employer assumes all the risk in a self-funded plan, the TPA has no real incentive to ensure that costs are low and billing is accurate. Some auditors claim that billing errors can vary from 1 to 3 percent of the cost.
The results of a healthcare audit should be:
- Refund of overpayments to fund
- Proper allocation of copayments
- Adjustment to bonuses paid for TPA performance guarantees
- The ability to access TPA’s competence
- A clear idea of what medical services are needed and which are superfluous
- A documented source to estimate future health care costs and fund requirements.
Along with correcting billing errors, a full healthcare audit of medical services and pharmacy services can help benefits managers identify which services are being used by employees. One way to reduce costs is to target coverage to suit the needs of the majority of employees.
Healthcare Audit for Fully Insured Plans
When pressed for time, simply signing up with the same provider every year might seem like a good idea. However, health insurance companies make adjustments in their plans every year. These adjustments may increase your costs without your realizing it.
The chaos at the end of the fiscal year makes it easy to let increased costs slide by. Plan ahead by planning a complete benefits audit in the slower months of October or November. You can request plan proposals from your insurance provider in advance. Then you can make comparisons for wiser budgeting.
If you offer a fully insured play, a professional third-party auditor can also access data that changes the risk assessment your insurer uses to determine your premiums. Many insurers base health care premiums against risk of accident and disease in your industry. However, many insurers over-estimate this risk.
By re-evaluating the actual risk, an experienced auditor can provide hard data to negotiate better rates. She can also assess current plans and find a more affordable package that maintains the desired coverage and reduces overall costs.
The Society for Human Resources Management notes that health insurance providers are excellent at determining how much of a rate hike their clients will stand before changing over to another provider. The objective data from a third-party auditor can provide backup for negotiating better rates. Sometimes just the knowledge that a third-party healthcare auditor is examining the records is enough to provide better leverage the bargaining table during annual renewal.
When to Do a Healthcare Audit
For fully insured plans, employers may want to do a healthcare audit every few years to make sure the carrier is living up to their promises. As health insurance premiums skyrocket, it becomes more important to have an objective party assess your needs and your options.
For a self-funded plan, experts suggest basing the frequency of a healthcare audio on the number of claims. Small companies with few employees and few claims may find a third-party audit only cost-effective performed every three to five years.
Large companies with self-funded insurance plans should perform a healthcare audit every year. The higher the number of transactions, the more errors will rack up, and the more money will be lost. Even 1 percent can add up if you’re talking about thousands of transactions per year.
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