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.
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
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Client B
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Client C
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Client D
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Industry
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Transportation / Manufacturing
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National Retail Chain
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Automotive Manufacturing
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Hospital Management System - 15 hospitals
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# Dependents
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350
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11,000+
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3,500
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17,000+
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Grandfathered or Non-Grandfathered
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Non-grandfathered
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Grandfathered:
Adult Children eligible for own employers’ plan were ineligible
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Non-grandfathered
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2 Hospitals under “RomneyCare”
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First Plan Renewal
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9/1/2011, but implemented on 9/1/2010;
Age 26 compliant for 4 months at verification start
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2/1/2011;
started verifying for HCR in mid-January
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2/2011;
started verifying for HCR in mid-February
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7/1/2011
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Results
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14.5% of dependents were ineligible, far higher than leadership expected
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· 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
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· Original DEVA found 10.55% of enrolled were ineligible
· Post-HCR DEVA found 27.91% of new enrollees were ineligible
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· 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
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Financial Exposure Reduction
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Over $184,960
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· Original project: $4,995,000
· First 4 months of PPACA: $1,482,300
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· Original project: $1,114,345
· First 4 months of PPACA: $1,500,442
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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.
