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Hospitals are Turning to Dependent Eligibility Audits

Hospitals are Turning to Dependent Eligibility Audits

Health system leadership teams are increasingly tasked with creative cost-cutting as the healthcare industry is presented more challenges in the form of rising expenses. For any business or organization with a large number of employees, reviewing and revising health benefits is often a way to scale back costs.

One cost containment strategy gaining considerable traction within the healthcare space is the use of a Dependent Eligibility Verification to ensure only eligible dependents, as outlined by the plan rules, are enrolled in an organization’s health plan. Life changes like legal separation, divorce, a spouse becoming eligible for his or her own employer’s health insurance or a child aging out of his or her parent’s insurance aren’t always reported by employees.

A Dependent Eligibility Verification may be used as a tool to assist in containment of benefits cost without jeopardizing the foundation of a health care plan and does not shift additional cost burden back to employees. It is a practical option for virtually all hospitals and health systems and results in meaningful cost savings.

According to industry studies, hospitals tend to have high annual employee turnover rates. For a health system that last conducted an audit even three years ago, a significant percentage of the current workforce may not have participated in dependent verification, exposing the hospital to considerable, and ongoing, risk.

On average, across all industries, a top performing audit firm will identify 5-8% of enrolled dependents as ineligible. Hospitals and health systems tend to be on the higher end of the ineligible spectrum, with an average ineligible rate of 7.4%. This represents significant unnecessary expense and risk.

For a hospital with 1,000 employees and 2,500 dependents - with an average annual dependent cost of $3,250 - a 7.4% ineligible rate translates into more than $600,000 of unnecessary expenses in just one year.

Most hospitals have an operating margin of 2-5%. At a median 3.5% operating margin, a health system would have to bring in more than $17 million in top line revenues to add $600,000 to their bottom line.

While hospital leadership is spending precious time brainstorming ways to contain costs, the practical choice of a Dependent Eligibility Verification providing almost immediate quantifiable results could be the easiest solution to cutting costs.