Employers should conduct healthcare claims audits to help rein in rising costs

Rising healthcare expenses continue to burden employers. And we expect average increases to range from 6% this year to 7.5% next. But employers that act to ensure they’re getting the most value from their vendor partners will likely see lower costs than those that don’t.

Many employers are focused on reducing expenses and taking a risk management approach toward healthcare spending. One way to manage the risk of rising health care costs is to perform detailed claims audits of the benefit administrators for all your healthcare plans. This includes medical, dental, vision, and behavioral health plans and flexible spending accounts.

To better manage your self-insured employer benefit plans, we recommend considering the following:

1. 01

   Self-insured employers overlook the financial risks associated with health plan administration

   Most large employers use a third-party administrator (TPA) to administer healthcare benefit plan offerings. Yet many don’t independently monitor the administration of the plan consistently. This makes healthcare benefit plan offerings one of the largest unaudited operating costs for employers.

   Employers often don’t check their plan administrators because they may be unaware of the financial risks involved. Though some TPAs perform quality assurance, they aren’t as thorough or comprehensive as an independent audit.

   TPAs aren’t financially responsible for the health plan, and the burden of their costs lies with the plan. As a result, administrators don’t have a financial incentive to control the costs for the self-funded plans they administer. Their lack of “skin in the game” often leads to errors. Though not intentional, errors in plan administration can cost employers much more money.

2. 02

   The healthcare claim-processing cycle is more complicated than many employers think

   The payment cycle for healthcare claims is a mix of automated and manual processes. It involves multiple factors that have financial implications for the member, plan sponsor and provider. According to the industry standard, administrators make errors on 1% to 3% of total claims processed.

   Errors in claims administration can fall under various categories:

   • Benefit determination: The most common error category involves benefit determination. These errors are everyday issues in claim administration, such as the application of common plan provisions that include copayments, deductibles, and coinsurance. Claims examiners often make incorrect determinations that result in payments for ineligible services and supplies or a miscalculation of benefits for procedures and services.
   • Provider pricing: The second most common error category involves miscalculating the contracted provider reimbursement arrangements. Pricing errors result from numerous sources, including:
     • Contracts with complex reimbursement structures and language requiring multistep computations
     • Varying stop loss methodologies
     • Carve-out reimbursement arrangements
     • Rate structures and references to ever-changing fee schedules
     • Weights assigned to service codes

     Most of the time, these complex reimbursement mechanisms require an examiner to manually determine the proper payment. They often lead to mispriced claims.

   • Coordination of benefits (COB): This error category involves plan administrators finding opportunities to coordinate benefits with other plans available to claimants. Other plans can include employer-sponsored health plans. Examples include government programs (Medicare, Medicaid, and veterans’ benefits) and tort subrogation or settlements. COB can be difficult to administer, and errors occur in benefit calculations and COB investigations.
   • Administration and coding: These errors are caused by how information is entered into an administrator’s claims-processing system. Many codes captured on healthcare claims are used for informational and statistical purposes. Also, many of these data fields can have a monetary impact if captured incorrectly. For example, dates of service, diagnosis codes and procedure codes can all have an impact on reimbursement amounts paid to healthcare providers.

3. 03

   To assess administrative performance, employers should consider conducting healthcare claim audits

   Audits ensure that healthcare claims are processed correctly and follow plan benefit designs and provisions. Audits may find potential flaws in an administrator’s claim process and find inaccuracies in their plan-processing system. Audits can confirm that plan administrators are neither overpaying claims nor paying claims in error. They can also keep healthcare expenses in check.

Employers can't assume that their healthcare plan administration is running as it should. They have a fiduciary responsibility toward plan participants to ensure appropriate controls are in place. And with the cost of healthcare increasing, employers — as plan sponsors — are accountable for protecting plan assets. We recommend that employers ensure they are getting the most value from their healthcare spend by healthcare audits of their vendor partners.

Author

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Francis Orejudos

Director, Health and Benefits

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