The Jury’s In: Rate of Ineligible Dependents Increases with Health Care Reform

This post was originally published on the Employee Benefit Advisor's blog, Be Advised.

One of the first (and most popular) changes brought on by Health Care Reform was the mandatory extension of health plan eligibility to adult children up to age 26 regardless of student status or dependence upon the employee. Most people predicted that the rate of ineligible dependents would decrease after this provision took effect. Based upon a study my firm recently completed, comparing similar populations before and after the implementation of this provision, we can now conclusively state that the experts were wrong.

The rate of ineligible dependents on the health plans analyzed in this study has increased by approximately 1.5 percentage points. What caused this change? What do the results of dependent eligibility audits conducted after the passage of Health Care Reform tell us about employee behavior? What should employers do based upon the results of this study?

Health Care Reform Expectations
When Health Care Reform passed, many experts analyzed the data coming from dependent eligibility verification projects in order to predict the effect of Health Care Reform on the efficacy of these projects. Using our data as an example, prior to Health Care Reform in a sample set of over 113,000 dependents verified, 48% of the ineligible dependents were under age 20, and 29% of the ineligible dependents were over age 26. Correspondingly, 23% of the ineligible dependents were between the ages of 20 and 26 (the typical ages of full-time students). Further investigation showed that half of these ineligible dependents were ineligible because they failed the “relationship” test.

As a result, it seemed reasonable to assume that with the testing for full-time student status eliminated, 11.5% of the previously identified ineligible dependents would now pass eligibility verification. Said another way, if 6.5% of dependents were found to be ineligible prior to the passage of Health Care Reform, it was likely that the rate of ineligible dependents would be reduced by 11.5%. Based upon this hypothesis, experts expected the average rate of ineligible dependents post Health Care Reform to drop from 6.5% to 5.75%.

This reduction, while significant, would have only partially mitigated the strong business case for an employer to conduct a dependent eligibility audit. For some employers, however, who anticipated that they might fall at the lower end of the ranges of ineligible dependents, this 11.5% reduction may have been enough to discourage them from the project.

The Real Effects of Health Care Reform
In this most recent study, though, the opposite has proven true.  Using a statistically significant sample of recent projects conducted by ContinuousHealth, we’ve found that the average percentage of ineligible dependents has actually increased to 7.99% after implementation of the Affordable Care Act.  Additionally, it is interesting to note the percentage breakdown of the ineligible dependents by age demonstrates a shift in the ages of ineligible dependents. Specifically, 38% of the ineligible dependents identified in this sample set were under the age of 20, compared to 48% prior to Health Care Reform. The percentage between age 20 and age 26 is virtually unchanged at 23%. The percentage of ineligible dependents above age 26 increased from its pre-Health Care Reform levels of 29% to a post Health Care Reform 40%.

What Conclusions Can We Draw from Increased Ineligible Numbers?
Certainly there were other factors in place during the time period studied. Part of this shift could be a result of the continued softness in the employment environment. This not only affects the percentage of dual-earner households, but also contributes to the rate at which employees might attempt to have non-spouses or other adults added to their plan who lack access to coverage due to unemployment.

Additionally, in 70% or more of the employers, the only verification procedure for dependents prior to Health Care Reform was the verification of full-time student status conducted annually or biannually by the health care plan administrator. With the changes brought on by Health Care Reform, this verification process was no longer relevant, thus eliminating the only stopgap against ineligible dependents.

A Necessary Response
Regardless of the root causes for this increase in ineligible dependent rate, the call to action is clear. For years, it’s been clear that if employers are not making arrangements to verify dependent eligibility with a thorough process that includes both education and document verification, there are likely to be ineligible dependents on the plan gratuitously driving up the cost of health care. In the post Health Care Reform era where even more dependents are eligible, the exposure risk of covering ineligible dependents is more significant than ever.

If you’re interested in the details of this study, see also the case studies below.  For more information about Health Care Reform or dependent eligibility audits, follow ContinuousHealth and Eric Helman, CEO, on Twitter at @CHealthUpdate or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta, Georgia, that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth has performed over 300 dependent eligibility verification projects and distributes its products through an exclusive network of certified consultants and brokers.

Case Studies
Client A is a small company in transportation and manufacturing.  Anticipating the changes required after 9/23, Client A modified its policy into a non-grandfathered plan with extended child eligibility to 26 at their 9/1/2010 plan renewal, in advance of the PPACA requirement.  At the time of verification, the company had been following the Age 26 rule for four months.  As a small company that had already implemented the Health Care Reform changes, leadership expected to see low ineligible dependent numbers.  Instead, the Dependent Eligibility Verification found that 14.5% of dependents on the plan were ineligible.

Client B is a large retail chain with mostly white collar employees in a low-income tax bracket.  Its plan renewal was 2/1/11, and under its Ongoing Verification procedures, the company began verifying for the new Health Care Reform categories in mid-January.  Client B implemented a grandfathered policy with an Adult Child Exclusion policy:  if an adult child was eligible for coverage under his or her own employer’s policy, that dependent was not eligible for the policy of Client B.  Open Enrollment numbers showed a 20% increase of enrollees to the policy, which fit with its expectations for the 2011 year.  The biggest surprise, though, was the upswing of ineligibles:  during the original verification, between October 2009 and January 2010, the ContinuousHealth Dependent Eligibility Verification Audit found that 1,851, or 16.56%, of Client B’s 11,175 dependents enrolled were ineligible; during the first four months following the implementation of PPACA regulations, the ContinuousHealth ongoing dependent eligibility verification audit found 549, or 30.57%, of the 1,796 newly enrolled dependents to be ineligible for the new policy.  This number was nearly double the findings of the original project, when the eligibility criteria were more stringent.

Client C is a major automotive manufacturing company with a non-grandfathered plan and a February plan renewal.  The company began verifying for new categories in mid-February.  Prior to Health Care Reform provisions, the Dependent Eligibility Verification Audit identified 10.55% of enrolled dependents as ineligible.  After enacting the Age 26 requirement, as well as the non-residential requirement for stepchildren, the Ongoing Dependent Eligibility Verification found that 27.91% of new enrollees were ineligible.

Client D is a large hospital management system with 15 localized hospitals.  The management system did a Dependent Eligibility Verification Audit in 2010, prior to implementing Health Care Reform at their July 1, 2011 plan renewal, with 13 of its 15 hospitals. The two hospitals who did not participate initially were both located in Massachusetts and were excluded because they were covered under “RomneyCare,” a set of provisions that representatives of President Obama have cited as a model for PPACA[1] and which have been called an “ObamaCare preview.”[2] After the leadership team reviewed the results from the initial verification, the two hospitals in Massachusetts decided to undergo a ContinuousHealth Dependent Eligibility Verification Audit as well. The results were comparable with their non-Massachusetts counterparts:  the original verification found 10.1% ineligibles for hospitals that were not yet subject to PPACA; one Massachusetts hospital discovered that 6.34% of dependents were ineligible and the other found 9.64% of dependents were ineligible under the current plan guidelines.[3]

	Client A	Client B	Client C	Client D
Industry	Transportation / Manufacturing	National Retail Chain	Automotive Manufacturing	Hospital Management System - 15 hospitals
# Dependents	350	11,000+	3,500	17,000+
Grandfathered or Non-Grandfathered	Non-grandfathered	Grandfathered:  Adult Children eligible for own employers’ plan were ineligible	Non-grandfathered	2 Hospitals under “RomneyCare”
First Plan Renewal	9/1/2011, but implemented on 9/1/2010; Age 26 compliant for 4 months at verification start	2/1/2011; started verifying for HCR in mid-January	2/2011; started verifying for HCR in mid-February	7/1/2011
Results	14.5% of dependents were ineligible, far higher than leadership expected	·  20% increase in Open Enrollment numbers ·  Original project in 2009-2010 found 16.56% of 11,175 dependents were ineligible ·  First 4 months of PPACA showed that 30.57% of the 1,796 newly enrolled were ineligible	·  Original DEVA found 10.55% of enrolled were ineligible ·  Post-HCR DEVA found 27.91% of new enrollees were ineligible	·  Initial project:  10.1% ineligibles ·  2 Hospitals excluded from initial verification because they were under RomneyCare. These did a DEVA after seeing other 13 hospitals’ results ·  Results were comparable: RomneyCare project:  6.34% ineligibles in one and 9.64% in the other
Financial Exposure Reduction	Over $184,960	·  Original project:  $4,995,000 ·  First 4 months of PPACA: $1,482,300	·  Original project:  $1,114,345 ·  First 4 months of PPACA: $1,500,442	Total savings:  $4,165,246

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[1] Carol E. Lee, “White House Again Jabs Romney on Health Law,” Washington Wire, Wall Street Journal, http://blogs.wsj.com/washwire/2011/05/13/white-house-again-jabs-romney-on-health-law, (May 17, 2011).

[2] “National Health Preview:  RomneyCare’s bad outcomes keep coming,” Wall Street Journal, http://online.wsj.com/article/SB10001424052748703864204576313370527615288.html?KEYWORDS=national+health+preview+romneycare, (May 10, 2011).

[3] The hospitals from the original verification were also not doing document checks, while the two Massachusetts hospitals believed their employee document records were up to date, checking student status as well as IRS dependency, per their SPD.

"FUD" Health News and the Informed Advisor

This post was originally published on the Vistage Executive Street blog.

Over the past few months, I've come across an increasing number of reports that I'm filing under “FUD” media: stories that employ tactics of Fear, Uncertainty and Doubt to influence their audience. The articles are certainly attention-grabbing, and I appreciate the passion and interest their authors display as they interpret a consequence of some hot-topic legislation.  The piece of legislation is the Patient Protection and Affordable Care Act (PPACA), and the “FUD” interpretation is that health care reform will bring about the end of the health insurance broker in America. 

The stories are attracting a lot of media buzz nationwide, since a majority of businesses use brokers to help them make employee benefit decisions and find the best available coverage.  As a Vistage member, most of the CEOs I know rely on brokers for advice, so the possibility that insurance brokers may no longer be necessary is interesting.  Unfortunately, the stories are ultimately under-informed.

Health care reform is changing the dynamic of health insurance and health insurance brokerage.  My firm assists health insurance brokers and consultants as they help their employers understand the new structures and incentives created by health care reform. We have conducted detailed analysis for over 280 employers using our CHROME Compass platform. Fewer than 8% of these employers would be better off terminating their health plans.  Meeting minimum requirements, modifying premium contributions as cross-referenced with employee’s household income and auto-enrollment constraints are challenging employers across the country.  For brokers and consultants to stay relevant, they need to help their customers understand the implications of health care reform at a granular level. They should then build on that understanding by helping their clients by creating a customized plan designed to transition from their current strategy to one that is "optimized" for the new structures and incentives of health care reform.

Benefits strategy and proactive planning are vital even for companies not affected by most PPACA mandates.  With tax incentives and coverage requirements changing, it’s more important than ever for brokers to be informed and educated strategists for their clients.  These are hurdles that require informed guidance, and if brokers do not know how to do this, they should get some help. Otherwise, as the media says, they may indeed be headed for a career change.

For more information about Health Care Reform or CHROME Compass, follow ContinuousHealth and Vistage member Eric Helman, CEO of ContinuousHealth, at @CHealthUpdate or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta, Georgia, that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth distributes its products through an exclusive network of certified brokers and consultants.   

What the McKinsey Report on Health Care Really Reveals

Originally published at Executive Street, a Vistage International blog.

Unless you were living under a rock this summer, you probably know that McKinsey & Company published a report titled “How US health care reform will affect employee benefits.” Amongst other findings, the study claims that 30% of employers polled plan to cut their group health care plans.

This caused a stir throughout the political arena, as Republicans cited the report as evidence of the negative consequences of Health Care Reform, and Democrats blasted McKinsey for not releasing their methodology. The real issue lies deeper, and is related to a topic about which I wrote previously on the Vistage blog, Executive Street. 

The Real Revelation

A June 24^th, 2011 editorial in the Wall Street Journal got me thinking about the root issue with the McKinsey report and most other media buzz about Health Care Reform. The editorial claims, “The furor says less about McKinsey than about the politically damaging reality of the new law.”  I’d go a different route.  I think the furor over the report reveals that across the board, decision makers don’t know anything (or at least enough) about Health Care Reform.

Upon release of the methodology, expert critics of the findings say that the survey was push polling, feeding questions to executives so as to cause them to give the right answer. Conversely, a Forbes blogger and many others feel that the survey was rigorous, prepared by a creditable research company. 

A Distraction, Not a Solution

Talking about “Shutting up McKinsey” (as the Wall Street Journal editorial stated) is, like so many things in the discussion about health care reform, a distraction. Whether or not the McKinsey results will be an accurate prediction of executive behavior, or if the survey did or did not meet the standards for academic rigor, might be newsworthy, but they miss the most important point. It is inconsequential until executives truly understand the implications of health care reform.

Our company works with senior executives every day to help them optimize their investments in employee benefits.  In doing so, we see that, across industries, regions and sizes of business, business leaders don’t have the most basic working knowledge about the new structures and incentives embedded in health care reform—and many don’t want to, as we mentioned in our last Vistage post when we referenced a survey that the WSJ’s CFO blog covered in May. That Journal article stated, “Of the 151 CFOs and executives of mid-sized companies… only 1 in 5 said they have actually given a great deal of thought to the health-care overhaul.” The backlash on the McKinsey report shows that statistic is probably accurate nationwide.

It is critical that executives do understand the implications of Health Care Reform in 2014 and beyond.  To quote the last paragraph of the now infamous McKinsey report:

Whether your company is poised to shift from employer-sponsored insurance or will continue to offer the same benefit package it does now, health care reform will change the economics of your workforce and benefits, as well as how your employees value coverage. Understanding these changes at a granular level will enable your company to gain or defend a competitive advantage in the increasingly dynamic market for talent [emphasis is mine].

Leading beyond 2014

It is irrelevant if McKinsey did or did not lead executives to a particular answer.  The fact remains that if you can be led, you don’t know enough.  If you want to know how your business (and your employees) will be impacted by health care reform, get some help. As Doug Elmendorf of the Congressional Budget Office testified before Congress on March 30, 2011, “Moreover, many of the effects of the legislation may not be felt for several years because it will take time for workers and employers to recognize and to adapt to the new incentives.” Leading employers will not be the last to know. If they are, they will no longer be leading employers.

Thanks for reading,

Eric

For more information about Health Care Reform or Dependent Eligibility Verification Audits, follow ContinuousHealth and Vistage member Eric Helman, CEO of ContinuousHealth, at @CHealthUpdate or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta Georgia that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth has performed over 250 Dependent Eligibility Verification projects. ContinuousHealth distributes its products through an exclusive network of certified Brokers and Consultants. 

Early Results are In: HCR may increase the Number of Ineligible Dependents

Originally published at Executive Street, a Vistage International blog.
While Health Care Reform is currently a much-discussed item in the media, the Wall Street Journal recently reported that the majority of CFOs are not considering the repercussions for their companies. The following study proves the fiscal responsibility for corporate leadership to research the effects of the Patient Protection and Affordable Care Act (PPACA) on their health care plans.

Ineligible Dependents:  Previously 5-12% of Dependents on Group Health Care Plans

Many experts believe that the number of ineligible dependents on a company’s health care plan will decrease as the mandates of the PPACA take effect. Nationwide, prior to PPACA, between 5-12% of group plan participants were typically found to be ineligible. The early results are in for a study showing that wider eligibility criteria may, in fact, directly correlate to higher percentages of ineligible dependents. 

Reform guidelines now require that adult children up to the age of 26 be eligible for coverage on their parents’ group health care plans, regardless of marital or employment status.* Many employers assume that this will significantly increase their enrollment body, and recent news reports confirm.  The enrollment of this age group is even higher than expected, as many as 600,000 new dependents in the first year alone.

Relatedly, many employers believe that investigating ineligibles is no longer necessary. Full-time student verification of that age group was standard practice with most group health care providers, and with this demographic now under mandated coverage, why check at all?

The Effects of Health Care Reform

Statistics gathered from recently conducted dependent eligibility verification audits show the need still exists and is, in fact, greater than ever. Projects completed since the implementation of Health Care Reform guidelines show nearly double the number of ineligible dependents. The average number of ineligible dependents identified on group coverage has risen from 8% to over 15%. 

The same ineligible dependents who existed prior to 9/23/10, excepting non-students, are still attempting to gain coverage from group plans. Dependents typically found who are not eligible for most plans include:

Ø  former spouses,

Ø  non-spouses,

Ø  former stepchildren,

Ø  grandchildren,

Ø  grandchildren over the age of 18 who are not enrolled in school,

Ø  non-child blood relatives and

Ø  non-eligible dependents declared on tax returns. 

Additionally, Health Care Reform has created new potentially ineligible dependent types, namely spouses and adult children who have coverage on other plans.

Prior to Reform, approximately 24% of ineligible dependents fell into the age range of 19-26. Of that 24%, half are unable to prove relationship. Thus, only 12% of typical ineligible dependents were previously non-students and are likely to qualify for coverage as a result of the change in age requirements. To put that into perspective, if a hypothetical employer covers 1,250 dependents and falls in the middle ground of 8% ineligible, 100 dependents would exit the plan. Health Care Reform guidelines for adult children now make 12 of those eligible. The other 88 remain ineligible and underscore the importance of continuing to verify dependent eligibility in a post-Health Care Reform nation. 

While the wider eligibility guidelines of PPACA do result in more dependents on a plan, the instance of and the exposure risk associated with ineligible dependents has not decreased. Rather, early results show that Health Care Reform directly correlates with higher percentages of ineligible dependents and, thus, an increased fiscal responsibility for CEOs and CFOs to recognize and eliminate fraud.

Case Study Results from Recent Dependent Eligibility Verification Audits:

	Client A	Client B	Client C	Client D
Industry	Transportation / Manufacturing	National Retail Chain	Automotive Manufacturing	Hospital Management System - 15 hospitals
# Dependents	350	11,000+	3,500	17,000+
Grandfathered or Non-Grandfathered	Non-grandfathered	Grandfathered:  Adult Children eligible for own employers’ plan were ineligible	Non-grandfathered	TBD; 2 Hospitals under “RomneyCare”
First Plan Renewal	9/1/2011, but implemented on 9/1/2010; Age 26 compliant for 4 months at verification start	2/1/2011; started verifying for HCR in mid-January	2/2011; started verifying for HCR in mid-February	7/1/2011
Results	14.5% of dependents were ineligible, far higher than leadership expected	·  20% increase in Open Enrollment numbers ·  Original project in 2009-2010 found 16.56% of 11,175 dependents were ineligible ·  First 4 months of PPACA showed that 30.57% of the 1,796 newly enrolled were ineligible	·  Original DEVA found 10.55% of enrolled were ineligible ·  Post-HCR DEVA found 27.91% of new enrollees were ineligible	·  Initial project:  10.1% ineligibles ·  2 Hospitals excluded from initial verification because they were under RomneyCare. These did a DEVA after seeing other 13 hospitals’ results ·  Results were comparable: RomneyCare project:  6.34% ineligibles in one and 9.64% in the other
Financial Exposure Reduction	Over $184,960	·  Original project:  $4,995,000 ·  First 4 months of PPACA: $1,482,300	·  Original project:  $1,114,345 ·  First 4 months of PPACA: $1,500,442	Total savings:  $4,165,246

A White Paper detailing final results will be available after all members of the study have been subject to PPACA regulations for six months or more. For more information about Health Care Reform or Dependent Eligibility Verification Audits, reach out to Vistage member Eric Helman, CEO of ContinuousHealth, at ehelman@continuoushealth.com, or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta Georgia that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth has performed over 250 Dependent Eligibility Verification projects. ContinuousHealth distributes its products through an exclusive network of certified Brokers and Consultants.