Many businesses have turned to self-insurance to provide health care benefits for employees with the intention of saving money. What many self-insured organizations don’t realize is that without proper oversight, they may fall prey to underperforming third-party administrators (TPAs), unfair or unmet contract terms, or overpaid medical claims—all of which can result in financial exposure.
Companies that self-insure their health care benefits are already feeling the burden of high costs and escalating fees. These benefit plans can cost millions of dollars and represent a significant portion of a company’s operating cost. For many organizations this expense is unregulated internally, which is often due to a lack of knowledge around plan performance management, and can make it one of their largest unaudited operating costs.
As health care plan sponsors, organizations are accountable for protecting plan assets and monetarily responsible to plan participants. Regular claims audits guarantee these two responsibilities are met while ensuring funds aren’t lost due to improperly paid claims.
Prevent Cost Overruns
For self-insured employers, a greater emphasis has started to be placed on conducting regular claim audits as best practice. Typically, organizations rely on a TPA to pay benefits claims. The plan sponsor then has a fiduciary responsibility to regularly and proactively monitor the performance of its TPA and ensure the plan delivers on what’s been outlined to employees. A claims audit helps ensure the plan sponsor is protected.
The primary purpose of a claims audit is to ensure the TPA consistently pays claims accurately and appropriately. During the audit process, a TPA is examined for its performance according to the contract and industry standards. The audit also focuses on:
- Determining weaknesses in the administrator’s claim process
- Ascertaining adherence to benefit plan provisions
- Evaluating stop-loss management and coordination of benefits processes
When administrators over- or underpay a medical claim, there are processes in place to correct this error that are set in the contract between an employer and TPA. Once an overpayment is identified and confirmed, the TPA should credit the amount back to the sponsor’s account, irrespective of whether the administrator has a process to recover the overpaid claims from providers. Within a contract, there may be limitations to the effort the administrator is required to make to recover these funds, which can result in the plan sponsor not receiving the full amount it’s due.
Understand Your Contract
There are certain key performance metrics that serve as best practice claims accuracy indicators. For example, a TPA should be performing at 99 percent claims financial accuracy. This is a measure of how many cents are correct for every dollar spent. When administrators perform below contractual claims financial accuracy targets, claims audit professionals can assist clients in the return of incorrect overpayments.
During a claims audit, one of the areas of focus is the contract between the TPA and plan sponsor. Administrator contracts usually have guarantees—in other words, stipulations that the administrator has put in place to determine performance and demonstrate adherence to the agreed-upon metrics. Although these should protect the plan sponsor, contract guarantees can often be self-serving in favor of the TPA. Performance standards stipulated in a contract may be notably below industry norms.
A TPA often sends monthly or quarterly reports to a plan sponsor to illustrate how its plan is functioning. The reports can be based on self-reported numbers and a calculation methodology that doesn’t adhere to industry standards, which result in performance metrics in the vendor’s favor. When an unbiased claims audit is performed, the actual performance accuracy rate can often be significantly below the TPA’s self-reported figure.
To offset misleading contractual agreements or reports, a claims audit professional can be brought in at the beginning of contract negotiations to ensure favorable terms for the plan sponsor. Additionally, the findings of a claims audit can also be used as leverage during negotiations with an administrator, especially when a TPA attempts to raise its rates.
Ensure You Have the Proper Controls in Place
Plan sponsors have a legal responsibility to ensure their plan is properly administered. This means plan sponsors need to ensure proper controls are in place, because they’re at risk if something goes wrong. For example, contract terms or benefits adjustments that can result in financial exposure or gaps in employee coverage. As best practice, a company should perform a claims audit every two to three years to help avoid undue risk and ensure money isn’t lost.
Claims audits are a key cost containment strategy for protecting an organization’s benefits and cash flow from risk. The benefits of a claims audit are far-reaching: It ensures confidence in a TPA and the controls an organization has in place, and it provides measurable ROI by identifying significant overpayments that’ve occurred or helping a company avoid future overpayments. It also helps shore up expense leakages, which can cost businesses hundreds of thousands of dollars in improperly paid claims.
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For more information on benefit claims audits and how they might help your organization, contact your Moss Adams professional.