WHY AUDIT
HEALTH BENEFITS ADMINISTRATION?
Fiduciary Responsibility
Self-funded
employee welfare plans subject to the Employee Retirement Income Security Act
of 1974 (“ERISA”) must pay benefits in accordance with the terms and conditions
set forth in the Plan document and the Summary Plan Description (“SPD”). Plan provisions that limit benefits to
“reasonable and customary charges” or “usual and customary rates” are
permissible and, where such provisions have been adopted, they must be enforced. To the extent that the failure to audit
charges for compliance with such standards result in large co-payments charges
to participants, plans have been required to reimburse the excess co-payment
charges to the participants. The
employer, as the plan fiduciary, may also be liable to plan participants for
any excessive payments, plus government sanctions and penalties.
Rising Health Care Cost
The cost of health care continues to
escalate every year. The current
predication for health care costs rising is double digit increases with no end
in sight. Rising health benefits costs
may include inflated payments to providers for goods and services and also the
cost of administration, payment errors, fraud, and overcharges. The first comprehensive audit of the Medicare
program showed that fraud, abuse, and errors accounted for $23 billion, or 14
percent of the program’s cost. The same
providers and claim administrators participating in the Medicare program are the
same providers and claim administrators that provides services and determines
benefits to be paid for self-funded employee welfare plans.
Controlling Financial Exposures
There are many opportunities for payment
errors and overcharges in health benefits administration. Claim examiners make payment errors,
providers overcharge, pricing limitations and discounts not being applied,
benefits not properly coordinated, inappropriate network utilization, fraud,
and the funding of the Plan are areas that auditors have found opportunities
for cost savings for their organizations.
These auditors have found, as with the United States General
Accountability Office’s (“GAO”) evaluation of the Medicare program -- that
healthcare is one of the top areas of consistent high-risk exposure that
warrants audit attention.
Managed Care Savings and Utilization
According to the GAO’s report “Managed
Health Care: Effect on Employers’ Costs Difficult to Measure”, there is little
empirical evidence that employers’ overall health care costs have been
constrained by using managed care plans.
While certain managed care plans have a potential for providing care at
lower cost, their ability to do so depends on the stringency of controls on
price and the use of services. For many
plans, the potential savings are lost due to poor benefit design,
under-utilization of the network providers, and referrals to out-of-network
providers that result in paying in-network benefits but without a “reasonable
and customary” fee to limit the payment.
Also, potential savings are lost when non-managed care plan participants
utilize network providers, but because they are not enrolled in the Plan the
discounted savings are lost.
Provide Management Guidance and
Recommendations
Most of the Administrative Services Only
(“ASO”) agreements are written by the administrator and are written to the
advantage of the administrator, not the health benefit plan. After the internal auditors have conducted a
health benefits administration audit, they are in the position to provide
management with recommendations for improving the ASO agreement. Additionally,
they can provide management with recommendations to improve the stewardship and
oversight of Plan administration.
For Additional
Examples and Reasons for Auditing HBA:
See
attached article “Diagnosis for Rising Health Costs” published by Internal Auditor, August 2006. A Google
search on “Richard M Stohl” will list other HBA related published articles you
can read on Find Articles.
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