More common than ever before, a participation audit is how your carrier determines if you’re adhering to your contract. Specifically, they want to ensure you’re offering the program in a fair manner to all eligible employees.
While participation audits don’t affect premiums, they can determine whether you’ll be offered renewal. Note that these are different than Workers Compensation audits.
What triggers an audit?
There are many triggers and they vary by carrier. The top four we see are:
- Enrollment of fewer than 2 employees.
- Groups with less than 10 enrollees who have a Medicare-eligible participant or dependent spouse.
- Significant changes in enrollment – usually plus or minus 30% in the participant count.
- More participants located away from headquarters than when the contract was written.
What are participation requirements?
All carriers have participation requirements built into their contracts. In fact, when you applied for group coverage, your agent audited your payroll against your enrollment to ensure your group met the carrier requirement. The industry standard is 75% participation of those who are eligible.
Measuring participation varies somewhat by carrier, but in general it’s calculated as follows:
- Take the total number of employees on your quarterly unemployment report and subtract those who are part-time and those who were terminated.
- Next, subtract those who are enrolled as a dependent on a spouse’s employer plan.
From this number you are expected to have 75% submitting applications.
The concept is that only uninsured employees count against having 100% participation. Uninsured are those without insurance or those enrolled in non-group medical plans. Your carrier’s logic is that if you are required to pay a minimum of 50% of the single premium, then most employees would choose to be insured.
If you pass the audit…
Congratulations! Take what you’ve learned and review your participation prior every open enrollment. Better to know ahead of time if you have issues – then you can take steps to increase participation.
If you didn’t pass…
If you failed the audit, then you have a challenge on your hands. Here’s what you could be facing:
- Coverage could be terminated mid-contract (provided the carrier gave 30 days advance notice of their intent to terminate).
- You may receive a letter stating the carrier has issued a DNR (they decline to renew your contract), and your contract will terminate at its anniversary.
- The carrier may determine the contract was administered incorrectly and offer to have an open enrollment mid-contract. If the results of the open enrollment fail to satisfy the participation requirement, they will either terminate or DNR the contract.
If your contract is terminated…
If you’re terminated, the next step is to apply to another carrier (assuming you want to continue offering group coverage). At this point, it’s critical to understand how you got to this point in the first place. We know most employers want employees to participate, but occasionally can’t hit the 75% participation requirement. Here are the key factors that undermine employee participation:
- High premiums
- High deductibles
- Composite rates
- Calendar year deductibles
You should work closely with your agent to implement strategies for improving participation.
Takeaways
To successfully navigate an audit, immediately contact your agent. Make sure they review all of your documents prior to submission to the carrier. Also, take this time to review your employer and employee contribution amounts – an audit is a good time to review how your entire employee benefits package is performing. The good side of an audit is that it requires us all to focus on participation, which is the foundation for stable rates.
