NYS Comptroller -- Wayne Cty. Healthcare Eligibility

8/3/2019 NYS Comptroller -- Wayne Cty. Healthcare Eligibility

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DIVISIONOF LOCAL GOVERNMENT

& SCHOOL ACCOUNTABILITY

O F F I C E O F T H E N E W YO R K ST A T E C O M P T R O L L E R

2011-MR-2

Wayne CountyEmployee Health

Care Plan TrustParticipants

Internal Controls Over

Dependent Eligibility

Thomas P. DiNapoli


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DIVISIONOF LOCAL GOVERNMENTAND SCHOOLACCOUNTABILITY 1

Table of Contents

Page

AUTHORITY LETTER 2

INTRODUCTION 3

Background 3

Objective 3

Scope and Methodology 4

Comments of Local Officials 4

INTERNAL CONTROLS OVER DEPENDENT ELIGIBILITY 5

Recommendations 9

APPENDIX A Response From Local Officials 10

APPENDIX B Audit Methodology and Standards 11

APPENDIX C How to Obtain Additional Copies of the Report 12

APPENDIX D Local Regional Office Listing 13


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OFFICEOFTHE NEW YORK STATE COMPTROLLER2

Division of Local Government

and School Accountability

September 2011

Dear Local Officials:

A top priority of the Office of the State Comptroller is to help local government officials manage

government resources efficiently and effectively and, by so doing, provide accountability for tax

dollars spent to support government operations. The Comptroller oversees the fiscal affairs of

local governments statewide, as well as compliance with relevant statutes and observance of good

business practices. This fiscal oversight is accomplished, in part, through our audits, which identify

opportunities for improving operations and municipalities governance. Audits also can identify

strategies to reduce costs and to strengthen controls intended to safeguard local government assets.

Following is a report of our audit entitled Wayne County Employee Health Care Plan Trust

Participants Internal Controls Over Dependent Eligibility. This audit was conducted pursuant to

Article V, Section 1 of the State Constitution and the State Comptrollers authority as set forth in

Article 3 of the General Municipal Law.

This audits results and recommendations are resources for local government officials to use in

effectively managing operations and in meeting the expectations of their constituents. If you have

questions about this report, please feel free to contact the local regional office for your county, as

listed at the end of this report.

Respectfully submitted,

Office of the State Comptroller

Division of Local Governmentand School Accountability

State of New York



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Since 1995, Wayne County (County) has provided their health

benefits via the Wayne County Employee Health Care Plan Trust

(Trust). The Trust originated as a way for the County to provide

better healthcare benefits at a lower cost to County employees. It

was established as a Welfare Trust under Article 44 of the State

Insurance Law. The Trust-sponsored plan (Plan) provides a full

range of medical, hospital and prescription drug coverage, as

well as a dental plan.

In January of 2000, the Trust opened participation to the 15

towns, nine villages and various other local governments within

the County. Currently, Trust participants (Participants) include

Wayne County, the Towns of Savannah, Palmyra, Butler, Rose,and the Wayne County Water and Sewer Authority. The Trust

provides benefits to these Participants 1,014 enrollees and their

1,149 dependents.

The Trust is governed by a Board consisting of three members

from the County Board of Supervisors and three union

representatives. The Board appoints a Plan Administrator1 to

manage the day-to-day operations of the Trust. Participants are

responsible for handling the enrollment of employees and their

dependents based on the criteria established by the Trusts Board

and written out in the Plan documents that are provided to allenrollees.

For the 2010 fiscal year, the Trust had expenses of nearly

$11.6 million, or about $1 million in expenses a month. The

largest expense for the Trust is the payment of claims. The

County Treasurers Office acts as a conduit for Trust payments.

However, the Trust is self-funded: the Trust collects premiums

from Participants, and contracts with a third-party administrator

(TPA) to add dependents to (or remove them from) the Plan and

to process and pay claims. The Trust also purchases a stop-lossinsurance policy to protect itself if claims exceed the amount of

premium dollars it collects.

The objective of our audit was to determine whether Participants

had adequate internal controls over dependent eligibility to

1 The Plan Administrator retired in October 2010 during the course of the

audit. An Interim Plan Administrator stepped in immediately following his

retirement.

Background

Introduction

Objective


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ensure that they and the Trust achieved cost savings. Our audit

addressed the following related questions:

Are Trust Participants actively pursuing cost savings

by verifying that enrollees are only claiming eligible

dependents on their health insurance?

We examined the health insurance related records of the

Participants of the Trust for the period January 1, 2009 to March

1, 2011.

We conducted our audit in accordance with generally accepted

government auditing standards (GAGAS). More information on

such standards and the methodology used in performing this audit

is included in Appendix B of this report.

The results of our audit and recommendations have been

discussed with local officials. Although we considered their

comments in preparing this report, local officials did not provide

a formal response to this global report.

Comments of Local

Officials

Scope and Methodology


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Internal Controls Over Dependent Eligibility

In 2010, the County spent over $11 million to provide health

insurance benefits to employees, retirees and qualified

dependents. Given the significant amount of these expenditures,

it is essential that the County and other Participants seek

opportunities to minimize the cost of providing benefits through

the Trust. One way to reduce costs is to ensure that only eligible

dependents are enrolled in the Plan. However, we found that no

one actually verifies dependent eligibility because Participants

Boards have not adopted policies that require such verification.

Employees are not asked to provide documentation to prove that

a claimed dependent meets the Plans eligibility requirements

at enrollment or at any time thereafter. Further, the Trust has

never conducted an eligibility audit to verify the status of the1,149 dependents enrolled in the Plan. As a result, ineligible

dependents could be receiving insurance benefits, which increases

Plan costs for the government employers and employees who

fund the Trust.

Dependent eligibility requirements are determined by the Trusts

Board and outlined in the Plan document, which is provided to all

Participants for distribution to their enrollees. The Plan document

states that the Plan Administrator has the authority to request

proof of dependency. Participating employers are responsible for

handling the enrollment of employees and their dependents basedon the criteria established by the Trusts Board and written out in

the Plan document. As of January 1, 2011, dependents covered by

the Plan must belong to one of the following categories to meet

eligibility requirements:

A spouse

A child less than 26 years old who is a(n)

o biological child

o step-child

o adopted child

o foster child


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procedures that require Participants to maintain regular ongoing

communication with their enrollees, either by personal contact

or by correspondence from the enrollee (e.g., postcards, letters),

so Participants can obtain written confirmation of the continuing

eligibility status of claimed dependents. Procedures could

also require that Participants send their employees an annualquestionnaire to verify dependent eligibility, and to follow up

with non-responders to ensure they receive replies confirming the

status of all dependents.

In addition, Participants could request that the Trust Board

perform, or hire someone to perform, a one-time dependent

eligibility audit to ensure that current dependents enrolled in

the Plan are in fact eligible. Many employers use dependent

eligibility audits as a way to ensure that the benefits they are

providing are going to qualified enrollees and dependents.3

Dependent audits are one-time or ongoing events that allowemployers to validate the eligibility of dependents covered under

their health and welfare insurance plans.4

At the time of our audit, the process for enrolling dependents

was the same at all six local government entities: applications are

initially prepared at the Participants offices and then forwarded

to the TPA, whose employees simply add the individuals to the

Plan. According to TPA officials, their contract with the Trust

requires that they process the application forms they receive from

Participants, not verify dependent status.

Given the absence of controls over dependent eligibility, we

randomly selected a sample of 52 dependents from the population

of 1,149 dependents enrolled in the Trusts Plan as of October

19, 2010. We reviewed the case files of these 52 dependents

at the TPAs office and found that they lacked any supporting

documentation; further, none of the participating municipalities

could provide supporting documentation. We then worked with

the Interim Plan Administrator to request documentation directly

from enrollees to verify these dependents eligibility. Of the 52

dependents tested, 13 individuals (25 percent) could not provideevidence of dependent status, and are potentially ineligible for

coverage by the Plan. When told about the results of our limited

test, the Interim Administrator chose to wait until he received our

audit report and recommendations before following up to resolve

these exceptions.3 www.hrmreport.com, RealLife HR Recommends Cost Savings Tool:

Dependent Eligibility Audit.4 www.hewittassociates.com, Ask Our Expert; Dependent Audit: An

Introduction Aon Hewitt.


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We attribute this relatively high rate of potentially ineligible

dependents in the Plan to the fact that Participants do not request

or require proof of dependent eligibility during the application

process, or at any time thereafter. The Boards at these entities

have not developed any procedures for verifying dependent

status, and have not conducted any audits of dependent eligibilityon their own.

When we asked the Interim Plan Administrator for the Trusts

written policies and procedures for verifying eligibility, he could

provide only the Plan booklets given to employees at enrollment.

The Plan documents developed by the Trust do outline the

eligibility requirements for enrollees and dependents, as well

as the supporting documentation that the Plan Administrator is

authorized to request as proof of dependency. However, the Plan

Administrator does not request such documentation.

As a result, ineligible dependents may be receiving benefits

through the Trust. This adds costs to the Plan which, in turn,

increases costs to the Participants that fund the Plan. The Trust

could not provide us with an average annual cost per dependent.

Therefore, to estimate the savings the Trust could realize by

ensuring dependents eligibility, we relied on information

published by human resources management experts, among

other sources,5 who estimate a cost of $2,000 to $5,000 annually

for each dependent. These same sources estimated that, on

average, dependent eligibility audits identify between 2 percent

and 8 percent of ineligible dependents. If the Trusts rate of

dependent ineligibility were similar to these average rates, the

Trust could potentially save from $45,960 to $459,6006 annually.

However, our limited sample results found that the Trusts rate of

potentially ineligible dependents, at 25 percent, was significantly

higher than the average rates. Based on a $2,000 to $5,000 annual

savings per dependent and our 25 percent exception rate, the

5 www.hrmreport.com, RealLife HR Recommends Cost Savings Tool:

Dependent Eligibility Audit.www.hewittassociates.com, Ask Our Expert; Dependent Audit: An

Introduction Aon Hewitt.

wsj.com, Dependents Under Scrutiny: Health-Care Worries Prompt Rise in

Audits.

www.buffalonews.com, Audit Uncovers Fraud.

www.denverpost.com, More Companies Checking Out Dependents on

Health Insurance Plans.6 We multiplied the average ineligibility rates by the average costs per

dependent to calculate that the Trust could save between $45,960 (2 percent x

$2,000 x 1,149) and $459,600 (8 percent x $5,000 x 1,149).


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Recommendations

potential savings in Trust expenses could range from $574,500

to $1,436,250 annually. The Trust had expenses of $12,846,938

for the 2009 fiscal year and $11,646,379 for the 2010 fiscal year,

so its average expenses for the two years were $12,246,658.

By calculating the highest to lowest potential savings, stated

above, as a percentage of the Trusts average annual expenses,we determined that identifying and disenrolling ineligible

dependents could reduce Plan costs between 4.7 percent and 11.7

percent.

Ensuring that only eligible persons receive Plan benefits should

provide for an equitable reduction in premiums paid by all

enrollees, consistent with the Trusts mission of providing

healthcare benefits at a lower cost.

1. Plan Participants should adopt written policies and

procedures establishing controls requiring dependenteligibility to be verified with proper documentation that is

reviewed and approved when dependents are enrolled and

periodically thereafter.

2. Plan Participants should request that the Trust Board perform,

or hire someone to perform, a one-time dependent eligibility

audit to ensure that current Trust dependents are in fact

eligible.


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APPENDIX A

RESPONSES FROM LOCAL OFFICIALS

We provided a draft copy of this global report to all six municipalities we audited and requested

a response from each local government. However, none of the municipalities chose to respond tothis report.


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APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

Our overall goal was to evaluate whether Participants had adequate internal controls over

dependent eligibility to ensure cost savings. We conducted this performance audit in accordancewith generally accepted government auditing standards (GAGAS). Those standards require that

we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable

basis for our findings and conclusions based on our audit objectives. We believe that the evidence

obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

We interviewed Trust and participating local government officials regarding dependent

eligibility requirements, to obtain an understanding of the process for adding dependents

to the Trusts plans, and to obtain figures on their health insurance costs.

Using computer added sampling, we set the parameters at 95 percent confidence in the

testing results, an upper error limit of 15 percent, and an expected error rate of 5 percent.

Our total dependent population was 1,149 and the result was a statistically random sample

of 52 dependents.

o We reviewed the case files of these 52 dependents at the TPAs office.

o We worked with the Interim Plan Administrator to request supporting documentation to

verify the eligibility of these 52 dependents.

o We reviewed the supporting documentation provided by these 52 dependents to verify

the dependents eligibility.

We reviewed written Plan documentation to gain an understanding of the Trusts

requirements for dependent eligibility.

We researched and documented average dependent costs and average rates of ineligible

dependents published in articles by various resources.

Using the figures provided by the Trust and statistics from researching, as well as the

results of our testing, we projected the range of possible savings based on the Trusts

expenses.


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APPENDIX C

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

To obtain copies of this report, write or visit our web page:


Public Information Office

110 State Street, 15th Floor

Albany, New York 12236

(518) 474-4015

http://www.osc.state.ny.us/localgov/


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APPENDIX D

OFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENT

AND SCHOOL ACCOUNTABILITY

Steven J. Hancox, Deputy ComptrollerNathaalie N. Carey, Assistant Comptroller

LOCAL REGIONAL OFFICE LISTING

NEWBURGH REGIONAL OFFICE

Christopher Ellis, Chief Examiner


33 Airport Center Drive, Suite 103

New Windsor, New York 12553-4725

(845) 567-0858 Fax (845) 567-0080

Email: [email protected]

Serving: Columbia, Dutchess, Greene, Orange,Putnam, Rockland, Ulster, Westchester Counties

ROCHESTER REGIONAL OFFICE

Edward V. Grant, Jr., Chief Examiner


The Powers Building

16 West Main Street Suite 522

Rochester, New York 14614-1608

(585) 454-2460 Fax (585) 454-3545


Serving: Cayuga, Chemung, Livingston, Monroe,

Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties

SYRACUSE REGIONAL OFFICE

Rebecca Wilcox, Chief Examiner


State Office Building, Room 409

333 E. Washington Street

Syracuse, New York 13202-1428

(315) 428-4192 Fax (315) 426-2119


Serving: Herkimer, Jefferson, Lewis, Madison,

Oneida, Onondaga, Oswego, St. Lawrence Counties

STATEWIDE AND REGIONAL PROJECTS

Ann C. Singer, Chief Examiner

State Office Building - Suite 1702

44 Hawley Street

Binghamton, New York 13901-4417

(607) 721-8306 Fax (607) 721-8313

BINGHAMTON REGIONAL OFFICE

H. Todd Eames, Chief Examiner


State Office Building - Suite 1702

44 Hawley Street

Binghamton, New York 13901-4417

(607) 721-8306 Fax (607) 721-8313


Serving: Broome, Chenango, Cortland, Delaware,

Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties

BUFFALO REGIONAL OFFICE

Robert Meller, Chief Examiner


295 Main Street, Suite 1032

Buffalo, New York 14203-2510

(716) 847-3647 Fax (716) 847-3643


Serving: Allegany, Cattaraugus, Chautauqua, Erie,

Genesee, Niagara, Orleans, Wyoming Counties

GLENS FALLS REGIONAL OFFICE

Jeffrey P. Leonard, Chief Examiner


One Broad Street Plaza

Glens Falls, New York 12801-4396

(518) 793-0057 Fax (518) 793-5797


Serving: Albany, Clinton, Essex, Franklin,

Fulton, Hamilton, Montgomery, Rensselaer,

Saratoga, Schenectady, Warren, Washington Counties

HAUPPAUGE REGIONAL OFFICE

Ira McCracken, Chief Examiner


NYS Office Building, Room 3A10

Veterans Memorial Highway

Hauppauge, New York 11788-5533

(631) 952-6534 Fax (631) 952-6530


Serving: Nassau and Suffolk Counties

Documents

NYS Comptroller -- Wayne Cty. Healthcare Eligibility