Secova Newsletter

July 2007

SECOVA INSIGHTS

The ROI of Implementing a Dependent Eligibility Audit
Secova, June 2007

For many years most employers have used an honor system when enrolling dependents in their various benefit programs. They have allowed employees to tell them who their dependents are without requiring supporting documentation. Several high-profile employers have recently determined that they are carrying dependents on their plans that do not meet their eligibility rules. Upon closer inspection with a Dependent Eligibility Audit, employers are finding that roughly 10% of the dependents on their benefit plans turn out to be ineligible for coverage. For instance, as noted in a July 2004 article in Business Insurance, Ford Motor Company removed 50,000 dependents from their plans, or approximately 10% of their total membership. The savings, as a result of their audit, will continue to accrue since the ineligible dependents would have been carried into the future.

Results of 5 Secova Dependent Eligibility Audit Clients
The following table outlines the results of five sample Dependent Eligibility Audits conducted by Secova. Each project resulted in a significant ROI. The savings projected in the above table are based on an average cost-per-dependent of $3,000 per year.

	Employees w/ 1 or more Dep	Dependents	Initial Dependent to Employee Ratio	Final Dependent to Employee Ratio	% Dropped	Estimated 1st Year Savings ($3K Per Drop)
Company A	5,000	9,500	1.90	1.70	10.5%	$ 3,000,000
Company B	5,500	12,000	2.180	1.94	11.0%	$ 4,000,000
Company C	10,000	20,000	2.00	1.86	7.0%	$ 4,000,000
Company D	20,000	33,000	1.65	1.51	8.5%	$ 8,500,000
Company E	5,300	10,000	1.89	1.58	16.0%	$ 5,000,000
Averages	9,160	16,900	1.92	1.65	10.6%	$ 4,900,000

While it is not hard for an employer to recognize the value of a Dependent Eligibility Audit, it can prove more difficult when looking at it through an employee's eyes. However, this process is not without value to the employee. Yes, most employers are still shouldering the majority of the benefit plan costs for their employees and dependents, however employees are being asked almost every day to increase their contribution amount. Therefore, a portion of any cost savings from the removal of ineligible dependents flows directly to employees by reducing the rate of increase they would otherwise experience.

When surveying employees about how they would like to be treated, the one answer that is always most prevalent is "equitable". Employees simply don't want to be treated any worse than their fellow employees. By determining that all of the dependents on a benefit plan are eligible, you eliminate the possibility of the majority of employees feeling like they have been disadvantaged by a small majority.

As an employer, if you have allowed employees to add dependents on your benefit plans without any verification of the eligibility of those dependents, then you should seriously consider a Dependent Eligibility Audit. The simple fact is that the results of similar audits performed by other employers show employees either do not understand your rules around dependent eligibility or simply choose to ignore them. With the proper planning, communications and call center support, you can achieve substantial savings without subjecting your employees to undue hardship and stress.

For more information on Dependent Eligibility Audits, we invite you to attend our free webinar on this topic, "Dependent Eligibility Audits - Open Enrollment and Beyond" on Thursday, July 12, 2007 at 12:00 pm PDT. Visit our website at http://www.secova.com/company/news/events.asp to register.

IN THE NEWS

'Communication Gap' Thwarts Benefits
Employers and employees are experiencing a communication gap with regard to compensation in general—and retirement benefits in particular—according to the results of the eighth annual Transamerica Retirement Survey.

The survey found that employers continue to overlook the high value that employees place on retirement benefits when compared with salary.

For example, 56 percent of employers surveyed believed employees would choose a higher salary over excellent retirement benefits, while only 34 percent of employees agreed with that statement.

The survey, sponsored by Transamerica Retirement Services in Los Angeles, also found that among employees whose company does not offer a retirement plan, 62 percent said they would leave their job for a similar position with an employer that offers a retirement plan.

Meanwhile, communication continues to be a stumbling block, preventing greater participation in the plans that are available to employees.

According to the survey, 26 percent of employees are not participating in their employee-sponsored retirement plans.

Source: Workforce Management: February 9, 2007

A 'Limited' Alternative to Health Plans With Gold-Plated Price Tags

Limited-benefit medical plans, which cover some basic health care needs but not catastrophic events, can help retail and service industry employers whose hourly workers often live paycheck to paycheck. They cover what most Americans refer to when they talk about health insurance: doctor visits, prescription drugs or a trip to the emergency room.

Limited-benefit medical plans are aimed at retail and service industry employers whose hourly workers often live paycheck to paycheck, don't own a house or car and either can't afford health insurance or work for a company that can’t afford to offer it.

Monthly premiums for limited-benefit plans run anywhere from $10 a week—or about an hour's wage for the worker making $20,000 annually to whom the plans are targeted—to $200 a month for something like the kind of major medical health coverage used by the approximately 150 million Americans who are covered by private employers.

Ratner Cos., a Vienna, Virginia-based chain of hair salons, has 14,000 hairstylists, mainly young women, who make an average of $25,000. At one point Ratner offered its hairstylists a major medical plan, but even with the company paying 50 percent of the cost, the majority could not afford it and did not enroll. The 10 percent who did enroll were the sickest employees and tended to spend the most on health care. The result was a spike in health care costs, and the company decided to stop offering major medical benefits. Now, the company offers a limited-benefit plan and pays the premiums for those who work 25 hours or more a week. The low cost of the premium has allowed many part-time workers to enroll too. Eighty percent of workers now have health insurance and the company’s health care costs have remained steady, says Candice Mendenhall, senior vice president of human resources.

Critics have pointed out that limited-benefit plans may cause some confusion for those who believe they will be covered in the event of a serious illness or event. Mendenhall says the plan is a better alternative to some of the more popular options, like health plans with high deductibles.

"What is going to be the most helpful to them?" she asks. "They don't have $3,000 in their pocket. They're living paycheck to paycheck. And this plan gives them first-dollar coverage."

Source: Workforce Management: June 2007

Big Employers Propose Health Benefits Overhaul

Some of the biggest U.S. employers recently said health care coverage and retirement plans for American workers should be delivered by competing third-party benefit administrators such as banks, investment companies and insurers. Employers would continue to fund health insurance and retirement benefits, but would pool their purchasing power and outsource administrative functions to save money under the proposal by the ERISA Industry Committee, a non-profit association committed to the advancement of the employee retirement, health, and compensation plans of America's major employers.

The committee, which includes executives from IBM Corp. and Tyco International Ltd., spent more than a year studying how to overhaul corporate health and retirement benefits to rein in soaring employer costs.

According to the report, "Deficiencies in the current system clearly are challenging employers and, in some cases, the viability of the benefits system in general." For the nearly 45 million Americans lacking any health coverage from an employer or government programs for the poor and elderly, the committee's proposal would make available a package of benefits. That portion of the proposal would require subsidies from state and federal government and individual contributions.

A key plank in the proposal is for at least two benefit administrators to compete for business from both employers and workers, based on geography, the panel said. The federal government would also need to set uniform national standards for health and retirement benefits in the packages.

Employers would also be free to continue offering their existing benefits programs.

Earlier this year, Wal-Mart Stores Inc. and the Service Employees International Union launched a campaign calling for universal health care coverage for all Americans by 2012, but offered no specific proposals. The same union also joined the Business Roundtable and AARP, representing older Americans, in January to urge Congress to focus on health care issues.

The ERISA committee's report was posted on the Internet at www.eric.org/forms/uploadFiles/b86a00000009
.filename.ERIC_New_Benefit_Platform_FL06060.pdf.

Source: Business Insurance: June 13, 2007

Bill Adds Domestic Partners To Health Tax Breaks

Legislation has been introduced in the U.S. Senate that would extend the same favorable tax treatment to health insurance coverage offered to employees' domestic partners that employer coverage provided to employees' spouses and dependents now receive.

Under the measure introduced Wednesday by Senators Maria Cantwell, D-Wash., and Gordon Smith, R-N.H., the cost of employer-paid coverage provided to a domestic partner or other nondependent, non-spouse beneficiary, would not be added to an employee's taxable income.

Additionally, employees could withdraw on a tax-free basis funds in their health savings accounts to be reimbursed for medical expenses incurred by a domestic partner. Currently, such withdrawals would be taxable to the employee, with an additional 10% penalty tax imposed.

The measure also would exclude the value of coverage in determining employees' wages for Social Security payroll tax purposes, as well as permit special trusts—known as voluntary employees' beneficiary associations—to provide health insurance to employees' domestic partners without the trusts losing their tax-exempt status.

A group of nearly three dozen major employers—including such well-known companies as Coors Brewing Co., General Mills Inc. and Hewlett-Packard Co.—have banded together through the Business Coalition for Benefits Tax Equity to support the bill, said James Delaplane, who represents several members of the coalition and is a partner with Davis & Harman L.L.P. in Washington.

Increasingly, employers have decided to extend health care coverage to employees' domestic partners because they believe it will help them to attract and retain employees, Mr. Delaplane said. "Now, it is time for the tax code to catch up," he said.

Source: Business Insurance: June 7, 2007

A Little Less Shifty – Employers Are Passing on Less of the Healthcare Burden to Workers

As health-care costs begin to moderate, the percentage of the cost that employers shift to employees is following suit. In 2007, the portion of the premium that employees pay is expected to rise by 6.5 percent, the smallest increase in years and well down from the 20 percent hikes earlier in the decade. That increase is in line with the 6.1 percent growth expected in the overall cost of health care for the year, meaning that employees are shouldering just a slightly disproportionate share of the total increase. In 2004 and 2005, overall health costs grew at the same 6.1 percent rate, but the share that employees paid through payroll deductions jumped by 12 percent and 13 percent, respectively.

Employers are also backing away from additional increases to out-of-pocket costs, such as deductibles and co-pays. Instead, employers are increasingly looking to long-term solutions for cutting health-care costs. They are focusing more on experimenting with different plan structures, such as consumer-driven plans; implementing health-improvement initiatives; and working toward digitizing medical records and other health data.

Source: CFO Magazine: June 1, 2007