Why You Should Audit Your Employee Benefit Plans Now (Really, Really Now!)

by Lewis D. Bivona Jr., CPA  – September 1, 2017
Why You Should Audit Your Employee Benefit Plans Now (Really, Really Now!)

During fiscal year (FY) 2016, the Federal Government won or negotiated over $2.5 billion in health care fraud judgments and settlements, and it attained additional administrative impositions in health care fraud cases and proceedings. As a result of these efforts, as well as those of preceding years, in FY 2016 over $3.3 billion was re­turned to the Federal Government or paid to private persons. Of this $3.3 billion, the Medicare Trust Funds received transfers of approximately $1.7 billion during this peri­od, and $235.2 million in federal Medicaid money was similarly transferred separately to the Treasury as a result of these efforts. Of the approximately $31 billion returned by the Health Care Fraud and Abuse Control (HCFAC) account to the Medi­care Trust Funds since the inception of the Program in 1997, over $17.9 billion has been returned from 2009 through 2016. 

The question remains, why do private employers not seem as interested as our government in compliance auditing to uncover excessive or inappropriate claims payments? Another question is why do their trusted advisors — CPAs — not counsel employers to audit their benefit plans as a matter of maintaining profitabil­ity? Employers have a fiduciary duty to their owners, shareholders and employees to pay only for appropriate and necessary services, otherwise the following things can happen:

  • Becoming non-competitive in the market place. If a company’s benefit costs are unnecessarily higher than their competition, they are at an economic disadvantage. Costs incurred that don’t relate to treatment. Why pay for prescriptions that have no correlation to what’s wrong with your employees (off-label uses)?
  • Price creep in areas such as brand-name drugs being filled when generics were ordered; acute pharmacy used instead of the mail formulary; incompatible tests ordering; inpatient admissions when outpatient services are more appropriate; and preferred provider network coverage is not adequate resulting in higher costs to the company and the employee.
  • Disgruntled employees. Employees share in the costs of premiums and deductibles; therefore, if the plan is not delivering optimum results, your employees will be subject to unnecessary financial strains. This also gives your competition an advantage in recruiting your best and brightest.
  • Ineligible persons on your benefit plan. Statistics show that on average 3 to 5 percent of dependents are ineligible for coverage. Removable of ineligible dependents will reduce claims and possibly lower your stop loss risk.
  • Disgruntled employees. Employees share in the costs of premiums and deductibles; therefore, if the plan is not delivering optimum results, your em­ployees will be subject to unnecessary financial strains. This also gives your competition an advantage in recruiting your best and brightest.
  • Ineligible persons on your benefit plan. Statistics show that on average 3 to 5 percent of dependents are ineligi­ble for coverage. Removable of ineligi­ble dependents will reduce claims and possibly lower your stop loss risk. 

Looking beyond the outright shysters, payment errors can occur for a multitude of reasons, such as: 

  • Complex contracting arrangements create opportunities for overpayments.
  • High-cost claims tend to be more error prone due to the sheer volume of ser­vices provided.
  • For plans offering prescription drug cov­erage, there can be serious overpricing of drugs and/or inappropriate calculation of rebates that employers may not be aware of at all. Even more concerning is that the medical claims and prescription drug claims generally operate in separate closed-loop systems that never compare if the drug being ordered has any relation to a valid medical condition.
  • Small errors can add up to big errors. A large volume of a company’s medical claims can be for services less than $250, however small errors that happen consistently in a large population will add up to a major amount of money.
  • Not all errors go in your favor. If providers are underpaid, they can still come back to your employees and your company for payment.
  • Not all dependents are dependents. While some TPAs indicate that they check eligibility annually or more fre­quently, it does not always happen.

With health care now comprising a major portion of a company’s budget, CEOs and CFOs cannot afford to overlook the potential impact on their financial statements. It is important to monitor compliance and performance of ERISA-based benefits. While ERISA plans offer employers many levels of savings and freedom from multiple jurisdictional regulations, it does not relieve them of the responsibility to exercise fiduciary duties. Benefit plan audits are not as expensive as sponsors may think, but the consequences of not auditing your benefit plan can be more expensive than you expected. Ask yourself, “Why am I not auditing my own benefit plan when the government has increased its audits with a yield of $5 for every dollar expended?” 


Lewis D. Bivona

Lewis D. Bivona

Lewis D. Bivona, CPA, is a consultant. He is a member of the New Jersey Society of CPAs Accounting & Auditing and Health Care interest groups and NJCPA Insurance Trust.