Secova Newsletter

February 2008

SECOVA INSIGHTS

Your Top 10 Questions Answered About a Dependent Eligibility Verification (DEV) Review - an interview with Secova's Director of Audit Services, Bruce Borgos

Q1: What is the average percentage of ineligible dependents you uncover with a Dependent Eligibility Verification Review?

BB: Secova's average is about 10% of all dependents, but we've had clients with more than 20%.

Q2: How long does it take to conduct a Dependent Eligibility Verification Review?

BB: From the planning stages to an updated dependent file back to the employer, normally 4-5 months. The turnaround can be very quick.

Q3: What is the ROI on a project like this?

BB: ROI ranges from 8:1 all the way up to 20 or 30:1.

Q4: What's the time commitment needed on the client side for a review?

BB: Secova typically works with clients to identify 1 or 2 day-to-day contacts within the organization with which we conduct weekly conference calls. But for planning purposes an initial meeting would typically include an internal communications specialist (if available), and a representative from data services (IT), along with the project lead(s) from benefits/HR.

Q5: Is there an advantage to conducting an amnesty or grace period to begin the process? And if so how long should an amnesty period run?

BB: Lots of employers believe there is. Providing employees an opportunity to declare ineligible dependents voluntarily and without penalty can be useful in promoting the project internally. Very often, employers can realize a drop rate of 1% or more from the amnesty period alone. An amnesty period of at least 30 days works best before beginning the document verification phase.

Q6: What types of consequences do you see for employees who have ineligible dependents?

BB: The gamut is pretty large. For some, it's simply that the ineligible dependents are removed from coverage. Some companies will have retroactive drop dates and attempt to recover premiums or claims payments made on behalf of ineligible dependents. On the other side of the spectrum, employee terminations could result if the situation indicates outright fraud. But these instances are rare. Most of Secova's clients fall in the middle.

Q7: How do you estimate dependent benefit costs on an annual basis?

BB: Whenever possible, Secova prefers to use the employer's actual cost, if known. If not, the current national average for dependent benefit cost per year is approximately $3,500 (Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2007).

Q8: What happens after the review? How do we manage the process going forward?

BB: Once a full review of current enrolled dependents is completed, it's critical to implement an ongoing management of dependent eligibility to ensure you don't slide back into the same place you were before you started. At a minimum, we recommend verifying dependents on all new hires and all life-change events resulting in changes to current dependent status or the addition of new dependents. National surveys indicate that without ongoing management of this risk, employers will be back to pre-Review status within 3 years.

Q9: Can we get our health insurance carrier to rebate premiums paid on behalf of ineligible dependents?

BB: Possibly. Check your contract(s) to see what the reconsideration period is. Very typically, you can receive credit if reported within 60 days of identifying ineligible dependents. (Is this correct?)

Q10: Is there a Sarbanes-Oxley exposure if we don't identify ineligible dependents?

BB: Potentially. Sarbanes-Oxley requires that all public companies have financial controls in place. As the plan fiduciary, you have an obligation to implement effective controls to prevent the enrollment of ineligible dependents.

IN THE NEWS

Employees Raiding 401(k)s, CFOs Say
The economic slump will cut into employee bonuses, new survey results show, even as many workers are already taking hardship withdrawals from their retirement funds.

The weakening American economy is beginning to take its toll on corporate employees where it hurts the most: their salaries and savings.

The latest Duke University/CFO Magazine Global Business Outlook Survey, which polls 573 finance chiefs in the U.S. and 1,275 globally, finds that year-end employee bonuses will fall by 10 percent this year compared to 2006. That decline could be especially painful at a time when more employees are dipping into their retirement accounts in order to pay bills.

The survey finds that nearly 20 percent of companies have seen increased hardship withdrawals from 401(k) accounts, often to cover mortgage payments or to avoid personal bankruptcy.

"In the last four or five months we have seen an absolute onslaught of people trying to do hardship withdrawals and loans out of 401(k)s," Mark Anderson, CFO of Granite City Electric, told CFO magazine in October. "What has happened with housing and the economy has really blown up for people at the lower end of the spectrum."

CFOs attribute the 401(k) withdrawals to the effects of the shaken credit markets and higher costs of living, among other reasons. Those concerns have affected companies from top to bottom. Nearly a third of CFOs polled in the survey said their firms have been directly hurt by credit conditions.

To make up for the prospect of slower growth in the future, many companies will raise prices and look for possible mergers. The survey finds that companies expect to raise the prices of their products by 2.8 percent in 2008, an increase from the 2 percent expected in the previous quarter. Meanwhile, 40 percent of U.S. firms said they would seek to buy either all or part of another company.

Source: CFO.com - December 5, 2007

Wellness Incentives Hit HIPAA Roadblock - Labor Dept. Guidance May Doom Programs Based on Health Bias

New federal regulatory guidance could bring to an end health incentive programs that are linked to very high-deductible health insurance plans in which the deductibles are offset by credits that employees receive for meeting specific health criteria.

Under such a design, for example, an employer might offer a health insurance plan with a $2,500 deductible for individual coverage. Then an eligible employee would receive credits totaling $2,000 to offset the deductible for meeting specified standards on body mass index, blood pressure and cholesterol and not using tobacco.

The appeal of such plans is obvious: By allowing employees who meet specific criteria to offset the high deductibles, employees have incentives to take steps to improve their health and not be exposed to health care expenses that fall under the deductible. But benefit experts in recent months have questioned the legality of those arrangements, which are purchased largely by small and midsize employers. Critics said such plans likely run afoul of requirements laid down by the federal Health Insurance Portability and Accountability Act.

Among other things, HIPAA bars health plans from discriminating against enrollees on the basis of health and limits total wellness program rewards to 20% of employee-only and family coverage if all covered individuals are allowed to participate in the wellness program.

Some plan vendors, though, said HIPAA restrictions didn't apply to health incentive plans because the plans fall into a supplemental category to which HIPAA nondiscrimination rules do not apply. They noted that certain plans are exempt from HIPAA's nondiscrimination rules, such as Medicare supplemental plans or "similar supplemental coverage provided to coverage under a group health plan."

The term "similar supplemental coverage" is not defined in law or regulations, which has created an opening for certain health incentive plans.

"We had very little direction on what `supplemental' meant," said Tami Simon, an attorney with Mercer L.L.C. in Washington.

But earlier this month, a Labor Department bulletin said coverage would be considered similar supplemental coverage and be exempt from HIPAA's nondiscrimination rules if it satisfied several standards. Those standards are:

• The supplemental policy must be issued by an entity separate from the provider of the primary coverage.
• The supplemental policy must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.
• The cost or value of the supplemental policy can be no more than 15% of the cost of the primary coverage.
• The policy must not differentiate among individuals in eligibility, benefits or premiums based on any health factor of an individual or any dependent of the individual.

It is that last test, benefit experts say, that will trip up health incentive programs in which deductibles are offset only for individuals who meet specified health standards.

"You are differentiating based on health factors," said Andy Anderson, of counsel with Morgan, Lewis & Bockius L.L.P. in Chicago, referring to the incentive plans.

"There is an outer limit and the DOL has defined it, which plans cannot go past," said J.D. Piro, an attorney in Norwalk, Conn., with Hewitt Associates Inc.

Unaffected by the Labor Department guidance-and similar guidance issued by the Department of Health and Human Services-are mainstream health incentive or wellness plans, such as those that provide cash to any enrollee, who takes a health risk assessment, for example.

"You are not requiring individuals to meet a health care standard," said Sharon Cohen, an attorney with Watson Wyatt Worldwide in Arlington, Va.

It isn't known how widespread the high-deductible incentive plans have become, though experts say they have been largely marketed to small and midsize employers.

"They have very much been in the minority," said Hewitt's Mr. Piro.

"I have not seen them yet in the large group market," said Barry Barnett, a principal with PricewaterhouseCoopers L.L.P. in New York.

For large employers, the record-keeping burden associated with such plans would be a "nightmare," said Mr. Barnett, who questions their effectiveness in any case. Providing cash to employees who lose weight, for example, is a much more effective incentive than lowering a deductible, he said.

Source: Business Insurance - December 17, 2007

NBGH Supports Mandate for Individuals

The National Business Group on Health, a consortium of around 300 of the nation's largest employers, has come out in support of legislation that would require individuals to buy health insurance coverage for themselves and their dependent children.

The Washington-based organization, which typically does not take positions on such issues, said it supports the concept of an individual mandate because the group's members believe it is a vital element to reforming the nation's health care system.

"I think we are on the cusp of big change in the U.S. on health care. We also have a significant number of people who will be elected or re-elected" who are ready to enact reforms, said NBGH President Helen Darling. "Things are coming together."

"To require everyone in the U.S. to have coverage and give them access to affordable packages" will change the market, "and people will be able to afford it whether employees buy it themselves or employers" provide it for them, she said.

While the NBGH supports an individual mandate, it continues to oppose any requirement that employers provide coverage.

The NBGH contends that states and the federal government should work together with the health plans, employers and other stakeholders to develop low-cost, voluntary programs that would cover working families with low or moderate incomes, as well as programs that would help small employers offer health coverage to their employees, Ms. Darling said.

NBGH members also support retaining the current favorable tax treatment of employer-sponsored health care coverage and would like individuals who purchase health insurance on their own to receive the same tax breaks.

Source: Business Insurance - February 4, 2008

Want to Save on Healthcare? Spend On Healthcare

If CFOs are looking for a way to fight ballooning health-care costs, they might actually want to consider one relatively quick fix: spend more money on health care.

While it sounds counterintuitive at first, experts in the health-care industry are suggesting that companies that implement wellness programs are now starting to show returns on those investments, specifically in the form of lower health-care costs.

"CFOs have always viewed health care as an expense, but rarely as an investment" said Jerry Ripperger, director of consumer health at the Principal Financial Group. "But improving the health of your employee base, rather than simply providing reimbursements, is an exercise in risk management with a true ROI."

The types of wellness programs may vary-generally they aim to get employees going to the doctor less by improving their overall health-but Mr. Ripperger said that the returns on such programs tend to be consistent across the board.

He pointed out that a recent study by Principal-one the company had validated by benefits consulting and actuarial firm Milliman-found that for every dollar spent on putting a wellness program in place, employers have seen an average reduction of $2.45 in medical claims. Generally, Mr. Ripperger added, it takes about 18 months for an employer to start seeing such returns, noting that the longer a wellness program is in place, the more health-care costs can be reduced.

While Mr. Ripperger said it's difficult to pinpoint the exact cost of a wellness program, they are often less than 5% of a company's total health-care costs.

On average, health care for a family runs about $12,100 a year-with employers picking up 72% of the bill, according to the Kaiser Family Foundation's 2007 annual report on employer health benefits.

Kaiser research also shows that companies tend to implement a wide range of wellness programs, although they are still utilized by only a small minority of corporations. Specifically, 19% of companies offer injury prevention programs, while 10% offer fitness programs, 9% have smoking cessation programs and only 6% offer weight-loss programs, according to the Kaiser Foundation.

Source: Financial Week - January 9, 2008

FUN FACTS

FORTUNE Magazine recently named its 2008 "100 Best Companies to Work For" and following are some interesting benefits facts about these winners:

• 21 companies on this year's list pay 100% of their employees' health-care premiums.
• More than one-fourth of the Best Companies (29) offer an onsite child-care center.
• 84 companies allow employees to telecommute or work at home at least 20% of the time.
• 18 companies on this year's list offer fully paid sabbaticals.