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For El Camino Hospital, Dependent Eligibility Audits Result in Notable Savings in Health Care Spending

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Over the past few years, employers of all sizes and across all industries are facing mounting financial challenges: from the economic downturn to ever-increasing costs for providing group health care coverage for employees. In addition to these financial concerns, rules set forth by ERISA and the Sarbanes Oxley Act require companies to implement and maintain higher levels of controls over corporate spending and risk management. Extra vigilance is demanded in the area of health care spending.

Dependent eligibility audits can be an effective tool for cost savings, and can also help employers ensure compliance with federal and state mandates. On average, 4–8 percent of dependents enrolled in an employer’s health plan are not truly eligible for coverage under plan guidelines, which results in considerable wasted spending. In 2009, El Camino Hospital—located in Mountain View and Los Gatos, Calif.—elected to conduct an audit of all dependents enrolled in their health benefit plans in an effort to curtail this waste. Initial health plan data showed that 1,501 employees were covering 3,164 dependents under the Hospital’s medical, dental, and/or vision plans. Understanding the time commitment and resources such an audit would require, the hospital chose to partner with HMS for the audit.

The objective of the audit was to ensure that all enrolled dependents met the hospital’s health plan eligibility definitions by requiring employees to provide documentation to verify eligibility, such as marriage certificates, birth certificates, etc. Using a proven, four-phase approach, HMS completed a comprehensive dependent eligibility audit of the entire health plan population.

Over the course of the audit, 7.6 percent (or 242) ineligible dependents were identified, resulting in a cost savings of $1,430,704 for the first year. This meant a return on investment for El Camino Hospital of 3,077 percent. In other words, the hospital recouped its initial investment within just 11 days.

As part of their ongoing effort to monitor and control health care costs, El Camino Hospital engaged HMS to perform additional follow-up audits in 2010 and 2011. In mid-2010, 16.22 percent of audited dependents (30 dependents) were found to be ineligible, which led to $177,360 in cost-avoidance savings. The 2011 ongoing reviews found 21.98 percent of audited dependents (111 dependents) to be ineligible, resulting in a savings of $591,075 for the hospital.

At the time of this writing, El Camino Hospital is conducting a review of dependents added following the November 2011 open enrollment period, and expects additional savings at its conclusion.

Rich Flaherty is vice president of Sales and Marketing at HMS. He can be reached at
812.704.5747 or by email at rich.flaherty@hms.com.

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