How One Health System Saved $3.5M in Benefits Costs

The cost of covering non-eligible "dependents" under an organization's health plan is significant, but avoidable. One health system shares its strategies for fraud-proofing its benefits system, humanely.

Pop quiz: Are the dependents on your employees' insurance policies truly eligible for health insurance coverage under your organizations' plan?

If you think that's a hard question, here's a tougher one: What exactly is a "dependent?"

Before you answer "yes," think again. "On average, 5%–8% of [dependents] are found to be ineligible [during a dependent audit]," says Mike Daugherty, director of corporate benefits at Baptist Health, an 18-facility healthcare system based KY, including seven acute care hospitals and about 16,000 employees.

At an estimated cost savings of $3,500 per covered life yearly, the cost is not insignificant. And it will only rise in lockstep with climbing healthcare costs.

In a dependent audit, beneficiaries are required to submit documentation verifying the eligibility of their dependents. In the case of Baptist Health, the lack of verification became evident after a nurse told some of her coworkers that she'd covered her boyfriend's children on the health system's insurance plan for the last few years. Her colleagues eventually decided that her actions were inappropriate and reported her to HR.

While many organizations would simply have terminated the employee and forgotten about the situation, Daugherty and his team decided to use it as a learning experience. If this case of fraud had managed to get through, they reasoned, it was likely that there were more dependents on the insurance plan that shouldn't be.

The team began to audit the eligibility of every dependent on the plan, with the goal of a more compliant, efficient, and fraud-proof benefits system. Baptist Health shared with me three lessons learned along the way:

1. You Will Find Ineligibles, and Cost Savings
As a result of running a dependent audit, Baptist Health found that 9% percent (or 1,446) of the dependents on its insurance were ineligible. This translated as an annual savings of $3,486,000. "We thought [the protections] we had in place would… keep our dependent data clean. But this wasn't sufficient to catch what you would with a dependent audit," says Daugherty.

The biggest shock of the entire process was in just how money his organization saved through this initiative. "The ROI was pretty amazing. We didn't expect that," he says.

2. Non-eligibles May Not be Obvious
Let's say a 10-year old child was abandoned by his birth parents as a baby and has lived with his grandmother ever since. The issue was kept within the family and never went to court, with all decisions regarding responsibility to that child being made informally, between family members. The child a dependent of his grandmother, right?

Wrong, not unless there's a court order assigning the grandmother guardianship or custody of the child. These were the types of sensitive issues that came up during the audit. Stepchildren, foreign-born spouses without translated documentation of marriage and children being cared for by aunts, uncles, older siblings or other relatives all needed to submit documentation to prove they were eligible for coverage.

Baptist Health hired a vendor to assist these employees with finding the right documentation, and to advise them on what steps had to be taken to bring the dependent back under eligibility. The important step, however, is to clearly define what a dependent is, and stick to that definition.

3. Give Fair Warning
Warn employees upfront that you will be performing an audit, and their responses might be surprisingly cooperative, says Daugherty. "We experienced 264 voluntary terminations of insurance [by employees who knew their "dependents" didn't qualify]," he says. These terminations alone realized an annual cost savings of $924,000.

Additionally, the organization gave employees three months to respond after the initial announcement of the audit, so they had time to gather proper documentation, birth certificates, court documents, and so on. "It was really important to tell employees up front what we would do," says Daugherty.

Additionally, Baptist Health decided as a corporation that it would not retroactively charge employees if they had claimed someone as a dependent who turned out to be ineligible.

"Employees knew we were looking out for their best interests," says Daugherty. Because employees felt like Baptist Health's leadership was doing this for the right reasons, most of them were honest, responsive, and helpful throughout the process.

Baptist decided to do the same for the nurse whose fraudulent dependents set the process of the audits in motion, electing to keep her as an employee.

A payment plan was set up for her to pay back the cost of the healthcare coverage for her boyfriend's children, and she was briefly put on a performance development plan. More than a year later, she is still employed by Baptist Health.

"I really defended [the decision to keep her as an employee], because I feel we didn't define dependent in a clear way. We looked at our process, and decided we could never have caught this," concludes Daugherty.

Once again, he says, it's important to make sure the definition of a dependent is clear, and that non-dependents cannot fly beneath the radar in the benefits system.