A survey of articles on the effectiveness of dependent eligibility audits show employers, on average, find between 4-8% of current participants ineligible for their healthcare plan coverage. In some cases, ineligible dependents constituted for 15% of the dependents receiving health care benefits. The average cost per ineligible dependent to the employer is between $3,500 and $4,500 per year.
Besides the obvious cost savings to the employer, what benefits come from auditing health plan participants? A major secondary reason for dependent participant review is compliance and fiduciary responsibility. ERISA and Sarbanes-Oxley require plan fiduciaries to ensure compliance with the plan rules. Ensuring the plan only covers eligible participants also ultimately saves all eligible participants when fraud or mistaken eligibility is uncovered. Reduction of excess premium sharing will save other employees money. This should be clearly communicated to employees.
So how do most ineligible dependents find their way onto health plans?
· Many are ex-spouses that never come off the plans after divorces are finalized.
· Children that “age out” of plan coverage. Currently children are eligible up to age 26 regardless of whether they are in school or not. Sometimes this is the result of clerical errors, sometimes just “forgetfulness.”
· “Spouses” that do not have legal marriage certificates.
· Dependents that should never have been put on the health plan to begin with such as grandchildren and extended family dependents.
· Adult dependents with access to their own group healthcare.
Verification of eligible dependent status follows a procedure that starts with communications with key management and then the employees themselves.
Employees are asked to present documentation proving their dependents’ status as eligible. This will include birth and marriage certificates, divorce agreements, and other documents of proof.
Expect and plan to address some sensitive situations such as executives with ineligible dependents – remind them ERISA puts a legal fiduciary duty on the plan sponsors and administrators to ensure plan compliance. Good deeds often do not go unpunished, and employees may have some situations that pull at the heartstrings. Should an amnesty period be given to clean this up, or will the employer expect re-payment for premiums wrongly paid in the past?
Dependent verification audits can be done internally; however, this will require a great deal of time and its very labor intensive. There will be a lot of calls from employees and others to handle, and there will be employee relations issues to deal with. There will also be a lot of documents going out and coming in for review. These need to be managed for volume and confidentiality.
Outsourcing this project, particularly the first time through allows the employer to be “neutral” in the face of some potentially upsetting circumstances. The outside audit service is experienced in handling communications, documentation handling and storage, ensures objective eligibility determination, and is experienced in answering the tough questions an audit may have to confront.
Sources: MRA Dependent Eligibility Audits - Worth the Investment! 3/1/2017; NYT Companies Crack Down on Defining Dependents in Benefit Plans 6/4/2010; Why Dependent Eligibility Audits Make Good Business “Cents” Kim Kapfer, Carrie Lopez, Dependent Eligibility Audits