How Ceridian’s dependent eligibility audit saved nearly $1 million per year in health care benefits costs

A Ceridian best practices case study

Ceridian is not immune to the high cost of employee benefits. Like many companies, Ceridian recognizes one of the best ways to differentiate itself as an employer is to offer its employees high quality, comprehensive employee benefits. For more than a decade, Ceridian has provided its employees with some of the industry’s best medical, dental, vision, and life and disability insurance plans. Offering state-of-the art benefits, however, can be expensive — particularly during a time of significant cost increases in many benefits.

In an effort to control rising benefits costs, Ceridian uses a variety of best practices to continue to offer its employees high-quality, cost-effective plans. Several of these efforts have been chronicled in Ceridian’s best practices case studies, which describe in detail Ceridian’s efforts to continue to offer excellent benefits while saving approximately $30 million in year-over-year benefits costs1.

This case study describes how Ceridian used a dependent eligibility audit to significantly reduce its annual cost of coverage for health care benefits.

The bottom lineIn summary, Ceridian’s dependent eligibility audit of its medical, dental and vision plans:

• Identified 342 ineligible dependents out of 6,664 total dependents covered (approximately 5 percent of its employees’ dependent population).

• Identified an estimated $999,324 in annual benefits savings.

• Used a variety of best practices to administer the audit over approximately six weeks.

The processCeridian uses the Six Sigma methodology to examine and improve all business processes — including those of our clients — to gain a better understanding of where efficiencies and cost savings can be realized.

Integral to the use of Six Sigma is the DMAIC framework: define, measure, analyze, improve and control. As applied to Ceridian’s dependent eligibility audit, the steps include the following:

How Ceridian’s dependent eligibility audit saved nearly $1 million per year in health care benefits costs

“Ceridian’s research shows American companies have ineligible dependent populations ranging from 5 percent to 15 percent. These companies lose an estimated $22 billion per year paying for the health care of their employees’ ineligible dependents, driving up health care costs for everyone. We believe a dependent eligibility audit is one of the best ways to drive fairness and equity into the plans and reduce health care costs for everyone.”

Kairus Tarapore, executive vice president, Human Resources, Ceridian

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Define Measure Analyze Improve Control

Define — Describe the issue a dependent eligibility audit can address.

Measure — Conduct a dependent eligibility audit.

Analyze — Review the audit’s results.

1 Detailed case studies describe Ceridian’s best practices managing its medical, 401(k), personal time off and related benefits. For more information on Ceridian’s best practices case studies, visit our website at www.ceridian.com.

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Define

Improve — If ineligible dependents are identified, remove them from Ceridian’s benefits plans.

Control — Periodically check to make sure employees are not covering ineligible dependents on their plans.

Issue Definition: Determining a Benefit Plan’s Eligible and Ineligible Dependents In businesses that offer benefits plans, research indicates that approximately 80 percent of employees participate and over half of those participants include dependents in their coverage. A 1,000-employee company that offers a typical health plan can expect the following participation rates2:

• Employees who will participate in the plan: 810 (81 percent)

• Participants who will cover dependents: 446 (55 percent)

• Total dependents covered: 981 (2.2 dependents per participant with dependent coverage)

• The average annual health plan cost per dependent: $3,0003

• The total health plan cost for dependents: $2,943,000 (981 dependents x $3,000)

While it may seem that determining who is an eligible dependent under a benefit plan is simple, in practice it can be more problematic. A benefit plan’s summary plan document clearly defines what constitutes an eligible dependent for the described plan. However, because there can be so many different types of eligible dependents, each with its own detailed description, the document requires careful employee review at the time of enrollment. In cases where dependents were eligible under a prior employer’s plan or an employee is required to cover a former spouse per a court document, the employee may spend little or no time reviewing the requirements prior to enrolling their dependents.

Similar to most benefit plan summary documents, Ceridian’s provides detailed definitions of each dependent type. While the definitions are explicit, some also can be lengthy. (To ensure this information is easily available to employees, it is also maintained on Ceridian’s online knowledge base, which employees can access at any time.) For example, Ceridian’s summary plan document specifically details dependent types and dependent definitions. Dependent types include:

• Spouse

• Same sex domestic partner

2 The Henry J. Kaiser Family Foundation, Employer Health Benefits 2009 Annual Survey (2009).3 Based on Ceridian’s Health & Welfare book of business.

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• Child by birth

• Adopted child

• Step child

• Disabled dependent over age 26

Understanding what constitutes an eligible dependent under a company’s benefit plan can vary by company. Therefore, almost every company’s benefit plan includes coverage of a small percentage of ineligible dependents at significant expense. On average, approximately 8 percent of the dependents covered under most company’s benefits plans are ineligible dependents. Using the example of a 1,000-employee company with a typical health care plan:

• The plan covers 78 ineligible dependents.

• The total cost of these ineligible dependents is $234,000 (78 dependents x $3,000 per dependent).

Ceridian’s research shows American companies lose an estimated $22 billion per year paying for the health care of their employees’ ineligible dependents4. Almost any company that offers its employees a typical health care coverage plan would benefit from conducting a dependent eligibility audit. Over the last three years, an increasing number of companies have performed or planned to perform some form of dependent eligibility audit.

“In most instances, U.S. businesses provide employees with some form of health care coverage that includes coverage for dependents. Even the most basic plans can include coverage of several dependent types. One of the best ways to determine your plan and its participants meet all ERISA obligations is by periodically conducting a dependent eligibility audit to ensure your plans are administered in accordance with the terms of the plan documents.”

Jennifer Bichsel, vice president, U.S. Benefits, Ceridian

4 Ceridian’s $22 billion estimate is based on a formula that relies on data from governmental, public and private sources (the private sources are primarily derived from Ceridian’s book of business). 5 Towers Watson, “Companies Remain Confident in Future of Health Benefits, Watson Wyatt/National Business Group on Health Survey Finds — March 2009” (March 12, 2009).

Figure 1 – Annual Dependent Audit Survey of 453 Large Employers5

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20%

40%

60%

80%

2007 2008 2009

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Figure 1 illustrates the increase in the number of companies conducting dependent eligibility audits, recognizing the audits as one of the most immediate, reliable, legitimate and cost-effective ways to reduce total health care costs.

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Conducting a Dependent Eligibility AuditCeridian used its Dependent Verification Services to manage its dependent eligibility audit, in large part, because they have experience, knowledge of best practices, and a variable pricing structure. Some of the reasons Ceridian Dependent Verification Services was chosen to conduct Ceridian’s audit included:

• Proven Track Record. With regard to dependent eligibility audits, Ceridian knows what does and does not work. Over the past 12 months, Ceridian has performed more than 16,000 audits and collectively saved clients millions of dollars.

• Immediate Savings. In as few as 90 days, Ceridian’s Dependent Verification Services can significantly reduce a company’s health care costs.

• Expertise. Ceridian has the KnowHow to remove ineligible dependents from health plans without jeopardizing the legal compliance of the plans.

• Real-time Progress Reporting. Ceridian’s technology enables clients to view real-time audit results online (and the estimated savings).

• Ease of Employee Access to Important Information. Employees and staff can access their accounts 24/7 and communicate with Ceridian via phone, Web, paper, fax and email. Ceridian also uses document imaging for all inbound fax and mail, simplifying document processing and review.

• Personalized Assistance. Ceridian’s call center experts make it easy for employees to get answers to their questions.

Measure

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Ceridian’s dependent eligibility audit took approximately eight weeks to complete (including a two-week grace period). The audit began August 30, 2010, and ended around the end of October. The summary of the audit process is described in Table 1.

Table 1. Ceridian’s Dependent Eligibility Audit Process

Date Communication(s) Description/Purpose

Annual Enrollment for 2010 (Fall 2009)

Ceridian Announced in its Annual Enrollment Guide that all employees with dependents in medical, dental and vision were required to certify their eligibility.

While proof of documentation was not required, participants with dependents covered under the plan were required to review the eligibility requirements and certify their dependents met the eligibility requirements. If they were ineligible, they should have been removed from coverage. Participants were also informed that Ceridian would be conducting an audit in 2010.

Week 1 (August 30)

Emailed announcements to employees describing the dependent eligibility process with a link to an enrollment site. The email included the Ceridian Verification Services — Dependent Types, Dependent Definitions and Eligibility Documentation.

The document provided all plan participants with detailed dependent types, definitions and what the audit required to confirm eligibility (copy of a marriage certificate, birth certificate, notarized affidavit, etc.). The process stated a clear end date: September 30. Employees were provided with a toll-free customer support number for follow-up questions.

Week 2 (September 6)

Mailed the Dependent Audit Requests to employees’ homes, which also included the dependent definitions and the Certificate of Dependent Eligibility.

Similar to the email distributed in week 1, these communications described the process, explained how to log on to the website, defined dependent types and provided a certificate that needed to be signed and returned with the appropriate proof of eligibility. Employees were reminded they must complete the process by September 30.

Week 3 and ongoing (September 13 and ongoing)

Depending upon the status of the verification, the employee received a Documents Verified notice or a Pending Determination notice.

The notice provided a status update to the employee.

Week 4 Emailed First Reminder notice. Employees were given a first reminder to prove dependent eligibility by September 30.

Week 5 Emailed Final Reminder notice. Employees received a final reminder to prove dependent eligibility.

Weeks 6-8 Depending upon the status of the employee’s verification, the employee received an Eligibility Not Verified notice or a No Response to Dependent Audit notice.

Dependents of employees who did not respond to the audit or were unable to provide the proper documentation were removed from coverage.

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Figure 2 provides an overview of the audit timeline Ceridian used to conduct its dependent eligibility audit. While the initial employee notices described a September 30 response deadline, a grace period extended the length of the eligibility audit to more than six weeks. Ceridian wanted to make sure it provided employees ample opportunity to respond to the request, and to make sure all their questions were answered. Employees could send their questions via an email address, or call a toll-free customer support line.

Analyze

Figure 2 – Ceridian’s Dependent Eligibility Audit Timeline

30-dayImplementation Period

60-dayVeri�cation Period

~15-daySilent Grace Period

Implementation period start

Veri�cation letter sent

Initial reminder letter sent

Final reminder letter sent

Beginning of silent grace period

Audit end, reportout to client

Amnesty/Declaration

During AnnualEnrollment

2010 Benefits Annual EnrollmentIt’s annual enrollment time again — your once a year opportunity to review the Ceridian benefits available to you, decide which ones are right for you and your family, and enroll in benefits from November 9 through November 20, 2009.

Table of Contents

2010 Benefit Highlights 1

What’s Changing for 2010 2

Dependent Verification 3

Pre-Tax Reimbursement Accounts 4

New Vision Provider 5

Life Insurance and AD&D 6

Disability 7

Make Informed Choices 8

Medical Plan Details 9

How to Enroll 12

2010 Annual Enrollment GuideFor full- and part-time benefits-eligible employees based in the U.S. for Ceridian, Comdata and Stored Value Solutions

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Special Features Available Online: • Use the medical cost estimator

• Compare plans in an easy-to-read format

• View your Personalized Benefit Worksheet

• Use the Flexible Spending Account calculator

2010 Ceridian Benefits Highlights Healthcare costs continue to rise and remain one of the key issues facing the country and corporate America. At Ceridian, we review our plans every year to ensure that we continue to provide competitive health and benefit programs that meet the needs of our employees and remain cost e�ective.

In 2010, even though healthcare costs continue to rise, we will not be increasing our monthly premiums for our core Blue Card PPO plans. To help mitigate some of the cost increases, we will be making changes to our plan design by increasing our copays/ deductibles and out-of-pocket maximums. As you prepare for Annual Enrollment, please review the information in this Guide which will update you on each of our benefit programs and summarizes the changes for 2010.

We are also excited to implement the following new Health and Wellness opportunities for 2010: • 100% coverage for Preventive Care • Full-integrated Disease Management program partnering with Blue Cross and Blue Shield and Life Works. • 24-Hour Nurseline • Incentive Program for participating in a Life Health Assessment • Incentive Program for participating in a program with one of our Health Coaches

We are looking forward to this partnership and additional health and wellness o�erings for all employees in the future. This is an opportunity to create a culture that emphasizes prevention and shared responsibility between you and Ceridian to manage health and health care costs.

New for 2010: Dependent Verification If you have dependents in a Ceridian medical, dental or vision plan, you will be required to certify their eligibility during Annual Enrollment.

Ceridian is responsible for ensuring that the dependents covered under our plans meet and are in compliance with our eligibility requirements. Instead of asking everyone to provide documentary proof of eligibility, we are asking for everyone with dependents covered by one of Ceridian’s plans to complete a declaration certifying that your dependents meet the requirements. Although we are not asking you to provide proof at this time, we will be conducting random audits throughout the year and may ask for supporting documentation at that time.

If you have dependents in Ceridian’s plans and you do not certify their eligibility during Annual Enrollment, their coverage will be dropped as of 12/31/09 and they will not have coverage for 2010. You will not be able to reinstitute your dependent(s) until 2011, unless you have a Life Status Event.

Please turn to page 3 for more details.

On-line Confirmation Statements:Employees will not receive a mailed copy of confirmation of 2010 Benefit Elections. A printer friendly version will be available as soon as you complete your on-line enrollment.

Results of the Dependent Eligibility Audit In terms of the DMAIC process, both analyze and improve are an intrinsic part of conducting a dependent eligibility audit. At the end of Ceridian’s process, the summary metrics included the following (out of a total of 6,266 eligible employees and retirees):

• Employees and retirees participating in Ceridian’s health care plan: 5,396 (86 percent)

• Plan participants with dependents covered under the plan: 2,924 (54 percent)

• Number of actual dependents covered under the plan: 6,664 (2.28 per participant with dependent coverage)

• Number of ineligible dependents the audit surfaced: 342 (5 percent of total dependents)

• Ceridian’s annual health plan cost per dependent: $2,922

• Annualized saving by removing ineligible dependents from Ceridian’s health care plan: $999,324

Control

The improve part of the process involved removing the ineligible dependents from benefit plan coverage. In the case of Ceridian’s audit results, the improvement resulted in a savings of almost 1 million dollars per year.

After the dependent eligibility audit was completed, Ceridian’s review of the process resulted in important lessons learned that would help when conducting future audits.

Required Documentation: The audit identified several employees whose dependents were clearly eligible for coverage, but who — because the documentation required to support their eligibility was narrowly defined — needed to prove their eligibility using different means. For instance, the audit process identified several employees who were married but filed their taxes separately, and others who could not produce a marriage certificate (both were part of the documentation requirement). For these rare exceptions, Ceridian allowed other forms of verification (e.g., a joint mortgage or renter’s agreement). In addition, future audits may not require the proof of both a marriage certificate and a tax document.

Call Center Support: Ceridian uses a Benefits Service Center that employees can call with questions regarding their benefits. For the dependent eligibility audit, Ceridian used a separate call center with representatives dedicated to answering questions only about the audit. In some instances employees with questions about the audit first contacted the Benefits Service Center. Unfortunately, Benefits Service Center representatives had not been prepared to adequately answer those questions. For future audits, Ceridian believes a best practice would be to provide the Benefits Service Center representatives with written scripts to help them field and/or refer questions to those best suited to answer dependent eligibility questions.

Control — Follow-up and ReviewThe DMAIC process requires a periodic follow-up and review of Ceridian’s dependent eligibility audit. As part of Ceridian’s ongoing control effort, every new hire must prove the eligibility of their dependents by reviewing the appropriate dependent types and definitions and declaring their eligibility. In addition, during the next few benefits annual enrollment periods, Ceridian will require all employees to attest to the eligibility of their dependents in order to declare them eligible for health care. It’s also important to stay current with health care legislation and regulations that are evolving. Ceridian will make certain its plan continues to meet all legal and regulatory requirements while using best practices to ensure all of its employees’ dependents are eligible for plan coverage.

Ceridian is a human resource (HR) services company with significant KnowHow in all areas of human resource management. Ceridian constantly uses its knowledge of best practices, process improvement methodologies and industry benchmarks to examine its employee programs. Ceridian’s recent dependent eligibility audit is just one of the company’s efforts to better manage overall HR costs so we can continue to provide all employees with an excellent benefits package.

Improve

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This document contains information that is proprietary and/or confidential to Ceridian Corporation and is intended solely for the use of our customers and prospects in evaluating Ceridian solutions. Any other use or distribution is prohibited. This document is not to be duplicated or distributed in printed or electronic format without the prior written consent of Ceridian Corporation. © 2011 Ceridian Corporation. All rights reserved.

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