When it comes to healthcare benefits for employees, hospitals have just about every other industry beat. It stands to reason. First of all, it'd look rather odd and disconcerting for patients if a hospital had employees bent over with hacking coughs or using the wheelchairs to nurse their swollen feet. It's the healing nature of the business. Also, it's about the only way to find quality help. No benefits, no employees.
But there is no denying that healthcare costs will continue to increase. The National Coalition on Health Care says the average annual premium that a health insurer charged an employer in 2007 was $12,100.
Even if a hospital health plan is self-insured, costs are going up. One estimate by Aon Consulting says the cost of healthcare benefits will grow by more than 10% in the coming year. This increased cost comes at a time when the economy is tanking and so-called "recession proof" hospitals are laying off workers and feeling the pain from low reimbursements, and a higher mix of uncompensated care.
To defray, somewhat, the rising costs of healthcare benefits, the hospital industry should copy other industries, where employers are turning to in-house audits to determine the eligibility of employees' dependents.
Arlingon, VA-based consultants Watson Wyatt Worldwide in March reported that more than half of the 453 large companies it surveyed planned to conduct a dependent audit this year, and that three in four companies say they'll audit in 2009.
One of those companies is General Motors Corp., a company that has hemorrhaged money in recent years, spending more than $4.6 billion in healthcare benefits in 2007. It announced in August that it would audit its 80,700 hourly employees and 345,000 retirees to determine dependent eligibility. The car maker has already audited its 36,600 salaried employees and nearly 100,000 retirees.
Steve Richter, senior vice president of Keenan & Associates, a Torrance, CA-based employee benefits consulting company, says more and more hospitals are undertaking the audits in the Golden State.
"We are finding routinely significant savings through audits," he says. "It's a way to contribute to the organization financially without taking anything away from eligible employees and their families. And it's a matter of doing the job correctly, of due diligence."
Of course, Richter is motivated to push dependent audits because that's what his company sells. Nevertheless, his point is well taken.
How do you know if your hospital should conduct a dependents audit? Well, if you've never done one before, that should tell you something. "We do an annual survey of hospitals and half of them tell us they've never confirmed the eligibility of their employees' dependents. That right there should be a red flag," Richter says. "We are talking about dependents that might be someone else's responsibility. Or a spouse who was divorced years ago but who wasn't dropped from the plan."
Richter says most of the ineligible dependents his company finds were added to the plan at a time when they were eligible. Because hospitals don't check the benefits rolls, and employees don't report it, however, those ineligible dependents stay aboard.
The costs can be significant. "What we find in our audits is that between 5% and 10% of the dependents on the plan are not eligible, and that translates into 2.5% to 5% of the total cost," Richter says. On average, hospitals save about $3,000 a year for every ineligible dependent they kick off the benefits plan. Keenan, under a typical audit model, is charging $50,000 to conduct a dependent audit of the 3,000 employees at a nonprofit community hospital in Southern California. Richter anticipates savings of at least $250,000 to $500,000 for the hospital. "That $500,000 assumes that 5% of the dependents are ineligible. Based on trends, at the 10% level we can double the savings to $1 million," he says.
In fact, Keenan is so confident that it can generate savings, it is offering a guaranteed return on investment of at least five times the project costs. "The project costs us $50,000 so there is a guaranteed return of $250,000 and we feel that is on the low side."
If auditors can make good on these guaranteed savings, I suspect that dependent audits will be a growth industry in the coming years.