Risk Assessment for Taft-Hartley Health and Welfare Plan Claim Payments

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Posted by Maria T. Hurd, CPA

In considering the completeness and accuracy of the benefit payment expense in Taft-Hartley health and welfare (H&W) plan financial statements, an auditor must consider what can go wrong.  For example:

  1. Plan provisions are inaccurately entered in the claims processor’s system, leading to claim payments not in accordance with the plan document.
  2. Self-funded payments made to claims processors do not reconcile to claim data files for the same period.
  3. Claim payments are made to or on behalf of individuals that are ineligible to receive benefits.
  4. Demographic information used to determine eligibility is incorrect or incomplete.
  5. Fictitious or duplicate claim payments are recorded.
  6. Claim payments are calculated incorrectly.

The nature, timing and extent of audit procedures is predicated upon the auditor’s assessment of the risk that the benefit payments expense could be materially misstated. For example:

  1. Analytical comparisons of the type of benefit paid by month could reveal unusual fluctuations, leading to the selection of a risk-based sample.
  2. Testing accuracy of claim payment based on the plan provisions.
  3. Testing a sample of denied claims to evaluate whether they were properly denied.
  4. Reconciling the claims data file to the wire transfer information to providers or to bank statements.
  5. Verification of stop-loss reimbursements for all shock claims
  6. For selected claims, examining claim submission for type and amount of claim and evidence of service rendered, such as a data feed from claims clearinghouse.
  7. Evaluate if the participant or beneficiary was eligible on the date of service.
  8. For fully insured plans, comparing the number of eligible participants with the number of premium payments. Recalculate applicable premium rates based on the insurance contracts.

Testing benefit payments can be challenging due to the highly specialized nature of the adjudication process.  Documentation supporting claim payments is generally maintained by the claims processor and to protect confidentiality, may only be available on-site at the claims processor.  In our experience, claims processors are very familiar with the audit process and will fulfill audit requests expeditiously if there is good communication between the parties, a clear information request letter, and all the appropriate agreements are signed in advance.


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Director Accounting & Auditing

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Belfint Lyons Shuman is a Certified Public Accounting (CPA) firm that audits Defined contribution plans (profit-sharing, 401(k), 403(b) , 401(a), 457(b))), and Defined benefit plans (pension and cash balance), and Health and welfare plans. We serve a variety of plan sponsors including for-profit, nonprofit, governmental, and Taft-Hartley collectively-bargained plans located in Delaware, Pennsylvania, New Jersey, Maryland, Washington, D.C., Virginia, Massachusetts, and nationally. For additional information contact us at info@belfint.com