Four ways advisors can curb benefits fraud

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Group benefits are an invaluable tool most companies harness to attract and retain the best talent. For employees, they characterize a noble intent of care, compassion and protection. For employers, they embody inherent risk.

As Mike Ignatz, head of business development and fraud investigation at The Benefits Trust, puts it, “Benefits are a form of compensation. And most benefit plans do not give employers any control of that compensation. Fraud is just one of the threats you accept when you take on a plan.”

The numbers are self-evident. According to the Canadian Health Care Anti-Fraud Association, fraudulent claims cost the industry anywhere from $1.2 to $6 billion every year. But despite its magnitude, benefits fraud is often perceived as a victimless crime, affecting insurance giants that have deep pockets and can stomach it.

The irony is, it hits much closer home. Consistent fraud erodes the plan by raising premiums for both employers and employees. And in more severe cases, it forces the plan sponsor to curtail or altogether cull coverage. Everyone ends up paying for the sins of a few.

The impact on small-to mid-sized companies can be even more severe as their consultants get very little support from the insurance company, says Anthony Feher, owner of A.F. Group Benefits Inc. “Fraud departments look for large systemic fraud. They don’t look for the one offs (which might still be in the thousands but don’t register with the insurer).”

What does fraud look like?
Benefits fraud can be perpetuated by plan members, service providers, or both in tandem. Some fraud, Ignatz says, isn’t even truly intentional. “Members might ask their provider to split up the receipts for a service into smaller ones to get around per-visit maximums. Dental offices might provide discounts to those who don’t have plans, but charge full price to those that do, and regularly utilize the new patient exam, even if the member has been a patient for years. Or, practitioners might recommend items based on available coverage (physio offices often call and ask for the run down on paramedicals, orthotics and support hose).”

This making-the-most-of-my-benefits approach straddles convenience and con. But it can develop into more insidious fraud when service providers or plan members start submitting claims for services they never provided or received, or start receiving products or services that aren’t covered, such as getting dress shoes and billing them as orthotics or billing teeth whitening as regular dental care.

How can advisors help?

1. Keep a close eye on things.
Start with staying vigilant, Feher says. “Do a thorough retrospective review of the claims utilization, be it drug, paramedical or health services.” At small- to medium-sized businesses, advisors can depend on HR insights on individual claims or health issues, and their own experience to know what’s going on within the company. “And in case of discrepancies, they can work with HR, administration and the insurer to come up with solutions.”

He cites a case where his team had to force Manulife to change their claims adjudication process on support hose, because a group was abusing the benefit. “Manulife was paying $200 per pair, for up to four pairs a year. We had 40 people maxing that out. They were either sharing them with family and friends or getting kickbacks. It was small potatoes for Manulife, but an over $20,000-a-year expense for the employer. Eventually, Manulife had to change their system, and now a $200 annual maximum has become the norm. We reduced claims to the benefit by 75%,” he notes.

2. Educate employers to question why.
Feher also encourages advisors to ask the employer the purpose of the benefit plan: why you have it, what you expect of it, and what you want your employees to gain from it? Answers to those questions could lead to better perspective and solutions. “For example, your overall costs may be in line with your budgeting, but if those claims are only being utilized by five to 10% of your employees, is that the best use of your dollars?”

Sometimes they have a good reason, Feher says. “I had a client with an employee whose daughter had very specialized needs. And the employer wanted to help.” In other cases, it may be out and out abuse. “In one case we noticed a huge surge in claims for eczema drugs. Upon review, we saw 20% of the employees making claims that were not traceable to the work environment. We ended up putting in a drug cap at that was the best solution available.”

3. Educate employees about why they should care.
Ignatz says employees often have a sense of entitlement when it comes to benefits, especially when they contribute to the plan. The attitude is: “So what if Mega Insurance Company has to dig into their pockets to cover it. They’ll still report billions in profit this quarter.”

But benefit plans, Ignatz notes, generally don’t work that way. “When you commit fraud, you are really reaching into the pocket of the person next to you. They end up paying higher premiums -― or losing benefits ―- because the employer can no longer support the claiming patterns.”

Therefore, it’s imperative that employees understand the cost of fraud. When an employee comes to realize they are reaching into the pockets of everybody in the lunchroom, it personalizes it, and they are more likely to follow their better nature, Ignatz says. “Once they understand that, encourage them to stay vigilant of providers misusing their plan dollars. Most insurance companies facilitate anonymous tip-reporting ― usually by phone or online. Make the presence of these services known and encourage members to use them when appropriate,” he adds.

Employees need to also understand they cannot blindly trust their service provider. Many clinics make submissions on their behalf, and this can lead to overbilling, Ignatz warns. “So, when in doubt, ask for clarification. Know what your plan is being billed for.”

For example, Ignatz notes, people are often shocked to learn that a unit of dental scaling is 15 minutes. When they bill for four units, it means the client sat through an hour of having their teeth scraped. “When a patient knows things like these and asks probing questions, the provider is less likely to stretch the truth.” 

4. Get creative with plan design.
According to Ignatz, plan design is the best protection against fraud. Combined and family maximums, and benefits for just the employee ― not the whole family ― are certainly worth considering. “Does it make sense for an employer with office workers who primarily sit all day to offer to cover orthotics?” he says. “Even an employer whose employees work in a warehouse could consider covering orthotics just for employees, and not their dependents.”

Co-pays and deductibles, he notes, are another effective prevention mechanism. They force plan members to take more responsibility for the cost and frequency of their claims submissions.

Health Care Spending Accounts (HSAs) also help deter fraud to a degree, Ignatz adds. “Not only is it a finite amount, but that amount is displayed at the bottom of each explanation of benefits. Members see that amount decrease with each claim, and they generally want those funds to be there when they need them for legitimate expenses.”

Employers are sometimes reticent to reduce coverage, as they don’t want to agitate their employees. In that case, your clients need to be sometimes reminded of the old 80/20 adage, Ignatz says. “Twenty percent of users drive 80% of costs, so the ones complaining are usually the ones responsible for the perpetual rate increases. By eliminating the risk of the open-ended plan and adding in an HSA, you are generally benefitting the 80% of workers who were not your cost drivers.”

Most benefits managers, according to Ignatz, also recommend against unlimited benefits of any kind since they are costly and difficult to retract once paid. “Many plan sponsors have taken to capping benefits in certain areas, such as orthotics and medical stockings, to control costs amid rising claims.”

Eventually, fraud is difficult to prove beyond a reasonable doubt, especially when the practitioner is in on it. Vigilant advisors, creative plan sponsors and conscientious plan members can prove the best safeguard against sneaky fraud that can suck the benefit out of group benefits.

Transcontinental Media G.P.