Dependent Audit Case Studies, after PPACA

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 big 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. Throughout the whole 2011 year, ineligible numbers came down, but were still considerably higher than the findings of the initial project, as between January and December 2011, ContinuousHealth identified that 26.84% of dependents did not meet the requirements to verify their eligibility for the plan. With the change in plan requirements under PPACA, Client B regularly found an increased rate of ineligibility by between ten and fourteen percent.

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 and removing a residential requirement for stepchildren, the Ongoing Dependent Eligibility Verification found that 27.91% of new enrollees were ineligible during the first four months of PPACA.  For the 2011 year, Continuoushealth identified 24.1% of dependents on the plan were ineligible for coverage, a slight drop from the first few months.  Overall, Client C has found an increase of more than double the rate of ineligibles since PPACA.

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]

After the first plan renewal for the entire system under PPACA (7/1/2011), leadership requested that all hospitals undergo another dependent eligibility review.  The hospitals all had similar plan eligibility, all non-grandfathered with no spousal exclusions or surcharges. During that post-PPACA review in fall of 2011, ContinuousHealth identified 21.01% of the active dependents on the plan were unable to satisfy eligibility requirements. Specifically, the two hospitals in Massachusetts each found 10.29% and 16.19% ineligible during the second review. All hospitals saw an increase in ineligible dependents. The post-PPACA verification savings for Client D totaled more than $5 million in claims cost reduction. 

Client E is a national restaurant chain with hourly and salaried employees throughout the US. At the time of review, Client E had been following PPACA guidelines for 12 months. The Human Resources team systematically requested documentation for any new enrollees, but the client had not done full documentation verification. ContinuousHealth identified 6.08% of the plan participants were ineligible for coverage under the non-grandfathered plan guidelines. Ineligible dependents were primarily over the age of 18 years old and may have been added on the plan as “spouses” or “adult children,” though they were, in fact, unable to verify their eligibility as such.

 

	Client A	Client B	Client C	Client D	Client E
Industry	Transportation / Manufacturing	National Retail Chain	Automotive Manufacturing	Hospital Management System - 15 hospitals	National Restaurant Chain
# Dependents	350	11,000+	3,500	17,000+	1,300
Grandfathered or Non-Grandfathered	Non-grandfathered	Grandfathered:  Adult Children eligible for own employers’ plans were ineligible	Non-grandfathered	Non-Grandfathered; 2 Hospitals under “RomneyCare”	Non-Grandfathered
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	1/1/2011
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 ·  2011 showed that 26.84% of the 2,724 newly enrolled were ineligible	·  Original DEVA found 10.55% of enrolled were ineligible ·  Post-HCR DEVA found 27.91% of new enrollees were ineligible ·  2011 showed 24.1% of the 1,229 newly enrolled were ineligible	·  Initial project:  10.1% ineligibles ·  2 “Romneycare” hospitals excluded from initial verification 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 ·  Post-PPACA found 21.01% ineligible overall	·  Identified 6.08% of active dependents were ineligible
Financial Exposure Reduction	Over $184,960	·  Original project:  $4,995,000 ·  First 4 months of PPACA: $1,482,300 ·  2011 verification: $1,462,000 (with a decrease in claims cost)	·  Original project:  $1,114,345 ·  First 4 months of PPACA: $1,500,442 ·  2011: $929,144	Total savings:  $4,165,246	Total savings:  $262,833

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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.

Fact or Fiction? Health Care Reform Eliminates the Need for Dependent Eligibility Verification

Last week, I was on the phone with one of our broker partners from the Midwest and he made a comment along the lines of “with health care reform, a lot of the appeal of dependent eligibility verification projects was taken away.” Well, at the risk of being argumentative, I shared with him the results of our post health care reform study* that showed, rather convincingly, that dependent verification projects are more valuable than ever.

Since that study was produced, our total number of audits conducted has grown to over 1,100. We have completed twice as many audits this year as last and the number of clients signing up for our Ongoing Dependent Eligibility Verification Services has risen above 70%. Moreover, we are now executing projects where the client has already conducted an internal audit (or used another firm) and are seeing significant savings. Dependent eligibility audits remain one of the only ways to take 3-5% out of health care expenses without any changes to the plan or contribution strategy. Brokers across the country are using this “weapon” as a way to win new business.

I think you owe it to yourself to do a top to bottom evaluation of your current book to be sure you have gotten them to seriously consider doing a project. And, if you are prospecting during this summer season, incorporate dependent eligibility verification into each sales presentation. Read on to review a reprise of our article on how the rate of ineligible dependents has increased from 6.5% to 7.99% with the passage of healthcare reform. 

*Report originally published on the Employee Benefit Advisor blog and November’s print issue of Employee Benefit Advisor magazine.

Rate of Ineligible Dependents Increases to 7.99% with health care reform

One of the first changes brought on by health care reform was the mandatory extension of health plan eligibility to adult children up to age 26 without regard to student status or other dependency upon the employee. Many experts predicted that the rate of ineligible dependents would decrease after this provision took effect and lower the effectiveness of Dependent Verification Projects.

Based upon a study my firm did in the fall 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 in the health plans analyzed in this study post health care reform has actually increased by approximately 1.5 percentage points.

Expectations prior to health care reform

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, 23% of the ineligible dependents were between the ages of 20 and 26 (the typical ages of full-time students), and 29% of the ineligible dependents were over age 26. Further investigation showed that half (11.5%) of ineligible dependents in the 20-26 age range were ineligible because they failed the “relationship” test. These wouldn’t be eligible for coverage regardless of their age.

It seemed reasonable to assume that with the dependent age limit increased to 26, about half of those who had been previously identified as ineligible dependents would now pass eligibility verification. The other half would still fail the relationship test and remain ineligible. Our own data led me to agree with the experts’ expectation of health care reform—that the average rate of ineligible dependents post health care reform would drop from 6.5% to 5.75% (a reduction of 11.5%).

That reduction, while significant, would have only partially mitigated the strong business case for an employer to conduct a dependent eligibility audit. There would be some employers, though, who anticipated falling at the lower end of the 5-12% average range of ineligible dependents. This 11.5% reduction may have been enough to discourage them from the project.

The real effects of health care reform

The fact is, our research since the passage of PPACA has proven that the opposite is true.  Using a statistically significant sample of recent audits 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. 

A 19% increase!

Additionally, we’ve seen a shift in the ages of ineligible dependents. Our sample set had 10% fewer ineligibles under the age of 20 and about the same number of ineligibles between the age of 20 and 26. Ineligible dependents over the age of 26 grew by 11%.

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 affects the percentage of dual-earner households and 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.

The publicity surrounding eligibility changes has been less than precise, even two years later. There is more potential that employees will attempt to enroll dependents that do not meet eligibility criteria. A person the employee calls “family” needs coverage (perhaps due to the softness of the market), and the employee therefore thinks he can cover them on “family” coverage.

With all of that, verification methods have been eradicated for most companies. For 70% or more of employers prior to health care reform, the only dependent verification procedure was full-time student status checks conducted annually or biannually by the health care plan administrator. PPACA’s changes eliminated the only stopgap against ineligible dependents.

A necessary response

Regardless of the root causes for this increase in ineligible dependent rate, I think the call to action is clear.

For years, we’ve seen that unless employers are making arrangements to verify dependent eligibility with a thorough process that includes both eligibility education and document verification, there are going to be ineligible dependents on every group plan, gratuitously driving up the cost of health care.

In fact, I’d say that the need is greater than ever to make sure ineligible dependents aren’t covered. The changes brought on by health care reform allow even more dependents to be eligible, so covering an ineligible dependent has a more significant exposure risk than ever.  With the prohibition on rescissions in PPACA, the financial exposure lands on the employer for ineligible dependents, since employers must prove employee fraud before exposure for high claims could be passed on.

I want your clients to be protected from the financial and compliance exposure of ineligible dependents, especially since that rate increased by 1.5% since implementing the provision. On top of all that, I’ll remind you again that dependent verification is a cost saving solution that regularly reduce plan expenses by 3-5% with no change in carriers or plan design. Our return on investment guarantee makes it a no-lose situation.  I think you owe it to yourself to do a top to bottom evaluation of your current book to be sure you have gotten them to seriously consider doing a project. And, if you are prospecting during this summer season, incorporate dependent eligibility verification into each sales presentation.

As you face a mid-market renewal season, propose a Dependent Verification Project with ContinuousHealth. It’ll be worth it.

If you’d like a copy of the original article or the case studies detailing report specifics, email directions@continuoushealth.com.

This article was first featured in the May 29th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services

Who can say if PPACA changed benefits for the better?

Employer-sponsored health insurance market has been eroding subtly and gradually over the past decade. Most employers have noticed the downward spiral in their plans, but they’ve been unable to effectively identify or counteract the issues. Changes to the health insurance market have been (and will continue to be) inevitable, regardless of the decision on health care reform. But many of your clients are now modeling one to three year strategies for their plans, using predictive modeling tools like our CHROME Compass.  These tools that were created as a response to health care reform, but they are also revolutionizing the way that employers see compensation.

Health care reform has changed the way everyone thinks about benefits programs… regardless of the decision.  Hear us out, and let us know if you agree.

While many in the employee benefits business are taking a “wait and see” attitude toward the Supreme Court deliberations and inevitable announcement in late June, others are taking a fresh look at their benefits program in light of the new opportunities and incentives created by health care reform. Is this a waste of time or are they gaining valuable insights leading to strategies that may increase their competitive advantages in their total employee rewards program? Won’t the game change entirely if health care reform is overturned?

Employer-sponsored health insurance was eroding long before health care reform

The rising cost of health insurance over the last ten years has significantly changed where people receive their coverage, how much they pay for it, and how much protection the benefit provides. Let’s start with a brief look at where people are receiving their coverage and how this has changed over the past decade. 

From 1999 to 2010, according to information from the U.S. Census, the number of people in the U.S. grew 10.6%. Surprisingly, the number of individuals who accessed health insurance at their employer dropped by 4.7%. Now, before you jump to a conclusion about changing demographics and the aging population, consider that when we look at the same data for the non-elderly (<65) population, we see an overall growth rate of 10.8% but a reduction in employer-sponsored health insurance of 5.7%. While the overall growth rate is within .2%, the reduction in the number of non-elderly individuals who accessed health insurance at their employer is greater by 1%.

Older people are staying on their employer plans longer. This is surprising, especially in light of the significant migration in benefits away from retiree health programs during this same time period.  Unfortunately, the corollary is that younger employees must be leaving their employers’ plans at a disproportionately high rate, accelerating the impact of rising health care costs on employer plans.

The second conclusion you might want to explore is whether the most recent recession and the reduction in employment is a major contributor to this erosion. Here again, the data says otherwise. Using the same period from 1999 to 2010, the Bureau of Labor Statistics reports the number of employed Americans actually grew from 133.5 million to 138.9 million (4.1%). While this obviously did not keep pace with population growth, it was still positive growth and does not explain the sharp reduction in employer-sponsored coverage over this time period.   

So, if people are leaving employer-based coverage, where are they going?

The answer, in terms of percentage growth from highest to lowest, is Medicaid (+78%), military (+51%), uninsured (+32%) and Medicare (+20%).

And remember, this is without health care reform. 

The erosion of the employer sponsored health insurance market has been both subtle and gradual. For this reason, most employers have been unable to effectively identify or counteract this downward spiral in their plans. Changes to the health insurance market have been (and will continue to be) inevitable as long as the growth in cost outpaces overall growth rates.

Enter health care reform.

In the words of Doug Elmendorf from the Congressional Budget Office, “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.” Employers who were drawn to model the impact of the dramatic reform changes are not only better prepared for health care reform, but they have also gained insights into the erosion they have been experiencing over the past ten years. 

Health care reform changes the mandated eligibility requirements in three of the five health insurance markets (Medicare, employer and individual) while at the same time significantly changing the tax structure in all three of these markets. Among other things, health care reform attempts to reduce the number of uninsured people in this country by offering new opportunities and incentives which affect three existing markets. Health care reform mandates expanded eligibility for both Medicaid and the employer markets. The individual market, too, is significantly reformed with the elimination of medical underwriting and, for the first time ever, significant tax subsidies for individual premiums are equal to or greater than those available in the employer market. 

By analyzing the potential impacts of these accelerated market shifts brought on by health care reform, employers are gaining valuable insights into what has been happening to their plans for the past 10 years. Whether health care reform is overturned or not, these employers are leveraging these insights to plot new strategies that are more proactive and intentional – transforming them from victims of health care inflation to strategic players in the allocation of employee compensation.

The light switch

Over 600 employers are now using our proprietary CHROME Compass planning platform to conduct the detailed analysis required to truly understand the intricate interdependencies of alternative insurance markets and tax policy changed by health care reform. In light of the upcoming Supreme Court decision, we asked many of these customers what insights they are gaining from the detailed modeling around health care reform and what value they see in it if heath care reform is overturned by the high court.

The most common responses we received across our diverse group of clients were:

We had never really looked at where all the dollars were going, especially in the area of favorable tax treatment.

We had been feeling the erosion of our benefit plan over the years, but, with this, it was like someone flicked on the light switch and we saw where we are in an entirely new light.

We now know how to ask ourselves, “Is this where we want to be? If not, how do we begin to work ourselves into a new place?”

These employers were only moved to review their benefits program because of the legislation. Once these tools made them aware of the possibilities in overall compensation strategy, though, their benefits programs will never be the same. The light switch is on.

This article was first featured in the May 22nd edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

A Quiet Revolution

The New York Times published an article Sunday about the slowing of health care inflation over the past two years. Health care costs are down 4% (adjusted for inflation: 3.1%), over the past two years. The reporter interviewed a handful of experts, from Harvard economists to the president of the Commonwealth Fund to the former head of Medicare and Medicaid. All of them said the same thing, best summed up by one expert in particular: ““The most honest thing to say is that, one, the reduction in use is greater than the recession predicts; two, we don’t understand why yet; and, three, you’d be foolhardy to say that we can understand it.”

Well, you can call us foolhardy, because our extensive work with a large number of clients has resulted in a confidence that we understand why health care inflation has slowed over the past few years. Let’s talk this through.

The preamble

Not to be picky, but before going any further, we have to make a comment about the routine (and incorrect) use of the term “health care inflation.” While we are not economists, most of us took a few econ classes in undergrad, and we learned enough to know that “inflation” is a general increase in prices as a result of too much money chasing too few goods. What passes for inflation as it relates to health care is actually increased consumption – in both quantity and through the consumption of higher priced treatments. In fact, many health care prices are actually moderating on a unit cost basis, owing to competitive pressures and patent expirations. People can’t fix what they don’t understand, and using incorrect terminology doesn’t help. We expect better from The New York Times, and we bet you do, too. OK, now that we’ve cleared that up…

After years of health care costs increasing as a percentage of the gross domestic product, 2009 and 2010 showed a significant slowing down of the health care cost curve. In fact, the total national health care spending growth of less than 4% per year is the slowest annual pace in more than fifty years. If it continues to hold steady at 17.9% of the GDP, there is hope for long term fiscal health for both national and household income, but in order to capture that slowing and replicate it year over year, we have to know why it’s happening.

And, according to the New York Times article, experts have no idea why this is happening.

Is it the recession?

Keeping with the zeitgeist of the time, the article first points the blame at the recession. The slowdown did occur during the same time as employer-based insurance options dipped for many Americans due to job loss. The recession may have made Americans more aware of health costs, who cut back on non-urgent care while money was tight. Gail Wilensky, speaker of our “foolhardy” quote, headed Medicare and Medicaid under President George Bush and believes the dip was caused by decreased income and decreased wealth during the recession. She fails to mention, however, that the COBRA subsidy program under ARRA artificially suppressed the number of “uninsured” you would typically expect when jobs are cut. And the fact these people stayed insured should have resulted in less of a drop in consumption than typically found in recessions.

The experts in the article all agreed that mitigation caused by recession would not be surprising or unexpected.

No, it’s not the recession (at least not entirely)

But a lot of the data points to a cause beyond the recession. States that weren’t hit too badly by the recession had some of the most rapid abatement in health care inflation. And some of the slowed spending occurred in market segments that shouldn’t have been recession-sensitive, like those on Medicaid and Medicare.

“The recession just doesn’t account for the numbers we’re seeing,” said David Cutler, a Harvard health economist and former adviser to President Obama. “I think there’s much more going on. If you asked me, ‘How confident are you that this is not just the recession?’ I’d say 75 percent.”

Well, then, is it health care reform?

The president of the Commonwealth Fund, Karen Davis, makes the case that health care reform is the cause: “A lot of the big gains have come from keeping people out of the hospital and the emergency rooms.”

No, it’s not health care reform (at least not entirely)

While a reduction in those big price-tag claims would account for the decreased spending, it’s unlikely that health reform has drastically reduced hospital and emergency room visits at this stage.

As we discussed last week, the high risk pool, PPACA’s interim solution to improve access to health coverage, has low engagement rates, and the uninsured rate has remained steady through 2010. Even for the 18-25 year old age range, the uninsured rate has declined from 28% to about 24% and has now leveled off over 2011.

Additionally, many economists believe costs may go up as tax incentives and new programs come into effect.

Is it… consumerism?

The Times article starts to hint at this option, but it fails to establish a conclusion. The author discusses the growth of high-deductible plans, cited as growth from 3% in 2006 to 13% in 2011, and how those plans impact the way that people think about health care. The author notes, “A broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening — if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.”

But we believe there’s no need to wonder. This behavioral change is well documented, from a recent Reuters article about the growth of consumer-direction coverage to the RAND study that shows high deductible plans may reduce spending by as much as 14%.

Our foolhardy proposition

Consumerism, we believe, is the key to the mitigation of health care inflation. As we pointed out earlier, in all other aspects of economics, inflation is a rise in cost of goods, but as it pertains to health care, inflation is a rise in use and engagement. Therefore, increased health care costs are increased use of the goods. Consumerism has everything to do with slowing health care spending.

In all segments, people are becoming more aware of the cost of health care. Insurance plans are becoming less rich, and people are more price-sensitive. That applies even in the Medicare world, as retiree health plans start to disappear.

As patients become consumers, they pay more attention to the market and to the costs of services. A September RAND study shows that patients with consumer-directed health plans not only reduce their costs through initiating health care less frequently, but also by reducing costs after they’ve begun care, sometimes through electing less expensive treatments or medications.

The past few years have seen a dramatic growth in the consumer-directed plans and the awareness of health care costs. With that, people are becoming more aware of their own consumption. Reduced consumption equals mitigated health care inflation.

We like the way Dr. Drew Altman, the president and CEO of the Kaiser Family Foundation, sums up the rise in consumer-directed plans: “Well you know, I think we've been so focused on health reform in Washington, what we have missed is there is a quiet revolution happening in health insurance out in the country.”

So how are you engaging in the quiet revolution? Are you helping your clients implement high deductible plans? And if so, have your clients seen a decline in health care spending? Is it just a coincidence that the “minimum” level of an acceptable employer-provided plan mirrors a high deductible health plan (without HSA contribution)?

This article was first featured in the May 7th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services