Understanding Health Plan Audit Rights for Self-Insured Employers

Introduction

Self-insured employers have the right to conduct audits on their health plans, specifically when working with Third-Party Administrators (TPAs) and Administrative Services Only (ASO) vendors. However, many employers fail to exercise these rights, potentially missing out on significant cost savings and operational improvements. This guide will clarify what self-insured employers can demand from TPAs and ASOs, and why these rights often remain unutilized.

Understanding Audit Rights

Audit rights are contractual provisions that allow employers to review the operations, financials, and compliance of their health plan administrators. These rights can cover various areas, including:

• Claims processing
• Financial reporting
• Compliance with legal regulations
• Provider networks

Typically, these audit rights are laid out in the service agreement between the employer and the TPA or ASO.

What Self-Insured Employers Can Demand

1. Access to Claims Data

   • Employers should request detailed claims data to analyze spending patterns. This includes:
     • Total claims paid
     • Claims by type (medical, pharmacy, etc.)
     • High-cost claims over $50,000
   • Benchmarking data for comparison, such as industry standards for claims costs, can also be requested.

2. Financial Reports

   • Regular financial reports should be provided, including:
     • Administrative fees (usually 4-6% of total claims)
     • Stop-loss insurance costs (often $25,000 per claim)
     • Any additional fees or hidden costs.

3. Compliance Documentation

   • Employers should ensure compliance with healthcare laws such as HIPAA and ERISA. Request documentation on:
     • Privacy policies
     • Employee communications regarding benefits
     • Any reported compliance issues.

4. Performance Metrics

   • Request key performance indicators (KPIs) that reflect the TPA's or ASO’s efficiency and effectiveness:
     • Claim processing turnaround time (average should be under 14 days)
     • Customer service response times (ideally within 24 hours)
     • Client satisfaction scores (aim for above 85%).

5. Provider Network Data

   • Employers can demand data related to the provider networks, including:
     • Network penetration rates (what percentage of claims are processed through in-network providers)
     • Discount rates negotiated with providers (Benchmark: discounts should average 50% off billed charges).

Why Most Self-Insured Employers Don’t Use Their Audit Rights

Despite having these rights, many self-insured employers rarely conduct audits. Here are some reasons why:

Lack of Awareness

Many employers are simply unaware of their audit rights. They may not fully understand their contracts with TPAs and ASOs, leading to missed opportunities for oversight.

Resource Constraints

Conducting a thorough audit requires time, personnel, and expertise. Many HR departments are already stretched thin and may lack the resources to execute a comprehensive audit.

Trust in Vendors

Employers often trust their TPAs and ASOs to manage their health plans effectively. This trust can lead to complacency, where employers assume that no issues exist without performing due diligence.

Complexity of Claims Data

Claims data can be complex and difficult to interpret. Employers may feel overwhelmed by the amount of information and unsure of how to analyze it effectively.

The Importance of Exercising Audit Rights

Failing to utilize audit rights can lead to significant financial losses. A study by the Employee Benefit Research Institute found that self-insured employers lose an average of 6-10% of their health plan budgets due to overpayments and inefficiencies.

Potential Benefits of Auditing

• Cost Savings: Identifying overpayments can result in recovering funds. For instance, if an employer spends $1 million annually on claims, a 10% recovery through audits equates to $100,000 in savings.
• Improved Compliance: Regular audits can ensure adherence to regulations, thereby avoiding penalties that can range from $50,000 to $1 million depending on the violation.
• Enhanced Vendor Performance: Audits can help employers hold TPAs and ASOs accountable, leading to improved service quality.

Bottom Line

Self-insured employers have valuable audit rights that can lead to significant cost savings and operational improvements. However, many fail to exercise these rights due to a lack of awareness, resource constraints, and misplaced trust in their vendors. To maximize the value of health plan investments, employers must prioritize understanding and utilizing their audit rights effectively. Regular audits can reveal inefficiencies, recover lost funds, and ensure compliance, ultimately safeguarding the financial health of the organization.