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LTC 538-2018 Health Dependent Eligibility AuditMIAMI BEACH OFFICE OF THE CITY MANAGER NO. LTC# LETTER TO COMMISSION 538-2018 TO: Mayor Dan Gelber and Members of th FROM : Jimmy L. Morales, City Mana DATE: October 4, 2018 SUBJECT: Health Dependent Eligibility Audit BACKGROUND Statistics shows that approximately 2-10% of enrolled dependents in a typical employer's medical plan are ineligible for coverage. With an average cost per dependent of $3,500, the financial impact of these ineligible dependents is significant, both in terms of current and future claims costs. Covering ineligible dependents drives up the cost of health care for all its participants. Every employer is at risk for carrying ineligible dependents on their health and dental plans which may consist of ex-spouses, common law partners , grandchildren, and extended family members. The City engaged BMI Audit Services for a comprehensive Dependent Eligibility Audit, which began in January 2018, as a cost savings exercise designed to identify, report and dis-enroll ineligible dependents from our medical and dental plans. The benefits of a Dependent Eligibility Audit include: • Best practice for risk avoidance ; • Improved internal controls to assure accurate enrollment records, documentation and communications; • Immediate measurable results as ineligible dependents are removed from coverage; • Confirmation that plan participants understand eligibility requirements and definitions; and • Avoidance of potentially large and unexpected costs if "stop-loss" claims are denied for ineligible dependents. BMI provided the City with an Audit Process Guide outlining materials required for the audit, roles and responsibilities of each party involved in the audit, and a timeline for the audit process . The first mailing to health plan participants began January 5, 2018 and the audit closed April 30, 2018. The eligibility file that was used to perform the review included the following breakdown within its 1,304 families. (For purposes of this audit, a family includes the employee and all dependents in the same household.) Letter to Commission Dependent Eligibility Audit Page 2 Member Type Record Count Employee 1,304 Dependent Child 1,578 Legal Spouse/Domestic Partner 1,085 Total# of Employees 1,304 Total# of Dependents 2,663 Total# of Members {Employees+ Dependents) 3,967 AUDIT FINDINGS The City achieved a 96.93% employee response rate to the dependent verification process. Below is a chart summarizing the status at the completion of the audit for each of the 1,304 families: Audit Status #of Employees % of Employees Complete -All Documentation Received by BMI 1,264 96.93% Incomplete -Documentation Missing in Response 22 1.69% No Response 18 1.38% Total Family Count 1,304 100.00% Using the parameters of plan eligibility criteria, BMI confirmed that 73 dependents were ineligible for failing to meet all requirements set forth in the City's heath and dental plan documents. See the chart below for specific results: % of Ineligible Reason for Ineligible Status #of Dependents Findings Dependent is overage and does not meet criteria to continue coverage 6 8.22% Employee and listed spouse are not married 2 2.74% Employee and listed spouse are divorced 9 12.33% Emloyee and listed domestic partner are no longer partners 1 1.37% Employee has requested to remove this dependent from coverage 55 75 .34% Total Dependents with Ineligible Status : 73 100.00% Below is a demographic breakdown of the confirmed ineligible dependents: % of Ineligible Member Relationship of Ineligible Dependents #of Dependents Findings Dependent Child 54 73.97% Legal Spouse/Domestic Partner 19 26.03% Total Dependents with Ineligible Status: 73 100.00% Letter to Commission Dependent Eligibility Audit Page 3 Of the 73 dependents who failed to meet plan eligibility requirements, 36 did not require coverage termination due to events which took place after the City provided the initial dependent listing to BMI Audit Services prior to the outset of the audit. Examples of those events include: • Coverage was already terminated on December 31, 2017 for dependents who attained age 26 after January 1, 2017. • Coverage was already terminated due to employment termination which followed the commencement of the dependent eligibility audit. • Coverage was already terminated due to a qualifying life event which took place before the completion of the dependent eligibility audit. For the remaining 37 dependents who were identified by the audit to be ineligible, the City promptly terminated coverage. Additionally, coverage was terminated for 19 dependents for employees who did not respond completely prior to the audit's deadline, despite multiple communications. There were 18 employees that did not respond in writing on behalf of their dependents, which resulted in 28 dependents being dropped from the plan. Estimated Calculated Savings and Return on Investment (ROI) Although actual cost can vary, the industry average estimated cost per dependent is $3,500 . This is the estimated average cost per dependent used by BMI for this analysis: #of Confirmed Ineligible Dependents: 37 #of Dependents Not Completing or Responding {19 incomplete+ 28 no response): 47 Estimated Average Annual Cost per Dependent: 3,500 Audit Fee: $34,018.36 Estimated First -Year Savings from 84 Dependents Removed: $294,000 First-Year ROI: 764.24% Even for the employees that were non-responsive by the close of BM l's audit period of April 30th, the City extended a final amnesty period of 25 days to those employees to comply with the required documentation to keep their dependents insured. At the end of that period, letters of intent to terminate coverage were sent to employees who had ineligible dependents enrolled in their health and/or dental plan. For a subset of these employees who received letters, many had an ineligible dependent enrolled in the plan who had incurred more than $1 ,000 in health and/or dental claims. This subset of employees was asked to attend a pre-determination meeting with members of the Human Resources Employee Relations Division in anticipation of potential disciplinary action. During the pre-determination meeting , employees were provided an opportunity to turn over the required documentation which was not submitted during the audit and they were also given an opportunity to explain how the ineligible dependents became enrolled in Letter to Comm ission Dependent Eligibility Audit Page4 the City's plan. These pre-determination meetings yielded an additional 5 employees that complied with the audit 's requirements. However the most drastic outcome was the termination of one employee from City employment because he falsely claimed two ineligible dependents on the City's health plan for over 10 years . Overall , the Dependent Eligibility Audit conducted by BM I was a success. They conducted an audit that was free of bias or outside influence. Most importantly, BMI had an extraordinary focus on privacy, security, and confidentiality of data and documents received by plan members. BMI was able to validate the accuracy of enrollment information , a process that had not taken place in many years. The good news is that our medical and dental plan now has up-to-date accurate dependent data files and any newly added dependents will be validated to maintain accuracy .