Fiduciary Responsibility


Self-funded employee welfare plans subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) must pay benefits in accordance with the terms and conditions set forth in the Plan document and the Summary Plan Description (“SPD”).  Plan provisions that limit benefits to “reasonable and customary charges” or “usual and customary rates” are permissible and, where such provisions have been adopted, they must be enforced.  To the extent that the failure to audit charges for compliance with such standards result in large co-payments charges to participants, plans have been required to reimburse the excess co-payment charges to the participants.  The employer, as the plan fiduciary, may also be liable to plan participants for any excessive payments, plus government sanctions and penalties.


Rising Health Care Cost


The cost of health care continues to escalate every year.  The current predication for health care costs rising is double digit increases with no end in sight.  Rising health benefits costs may include inflated payments to providers for goods and services and also the cost of administration, payment errors, fraud, and overcharges.  The first comprehensive audit of the Medicare program showed that fraud, abuse, and errors accounted for $23 billion, or 14 percent of the program’s cost.  The same providers and claim administrators participating in the Medicare program are the same providers and claim administrators that provides services and determines benefits to be paid for self-funded employee welfare plans.


Controlling Financial Exposures


There are many opportunities for payment errors and overcharges in health benefits administration.  Claim examiners make payment errors, providers overcharge, pricing limitations and discounts not being applied, benefits not properly coordinated, inappropriate network utilization, fraud, and the funding of the Plan are areas that auditors have found opportunities for cost savings for their organizations.  These auditors have found, as with the United States General Accountability Office’s (“GAO”) evaluation of the Medicare program -- that healthcare is one of the top areas of consistent high-risk exposure that warrants audit attention. 


Managed Care Savings and Utilization


According to the GAO’s report “Managed Health Care: Effect on Employers’ Costs Difficult to Measure”, there is little empirical evidence that employers’ overall health care costs have been constrained by using managed care plans.  While certain managed care plans have a potential for providing care at lower cost, their ability to do so depends on the stringency of controls on price and the use of services.  For many plans, the potential savings are lost due to poor benefit design, under-utilization of the network providers, and referrals to out-of-network providers that result in paying in-network benefits but without a “reasonable and customary” fee to limit the payment.  Also, potential savings are lost when non-managed care plan participants utilize network providers, but because they are not enrolled in the Plan the discounted savings are lost.


Provide Management Guidance and Recommendations


Most of the Administrative Services Only (“ASO”) agreements are written by the administrator and are written to the advantage of the administrator, not the health benefit plan.  After the internal auditors have conducted a health benefits administration audit, they are in the position to provide management with recommendations for improving the ASO agreement. Additionally, they can provide management with recommendations to improve the stewardship and oversight of Plan administration.






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