A dependent eligibility audit is a critical evaluation of an employer’s health plan to verify that all enrolled dependents meet the eligibility requirements set forth under the plan.
The audit process requires each enrolled dependent’s eligibility be substantiated, and those that fail to meet the eligibility requirements may be removed from the plan.
The primary benefit of an audit to an employer is twofold.
“First, the employer will be in a better position to control costs by eliminating claims paid for ineligible dependents,” says Ron Filice, president and CEO at Filice Insurance. “However, just as beneficial from a compliance standpoint is the important advantage of ensuring that the terms of the plan are strictly adhered to by enrolling only dependents who meet the plan’s requirements for eligibility.”
Smart Business spoke with Filice about the dependent eligibility audit process.
Where does an employer start?
The first step in undertaking a dependent eligibility audit requires a careful review of plan documents, including the Summary Plan Description, and any enrollment materials. These documents set forth the definition of an eligible dependent.
While federal law provides basic guidelines as to who must be included as a dependent, employers often go beyond those basic guidelines and set a more inclusive definition. This definition may appear straightforward, but it is imperative that an employer fully understand who is included and who is excluded as a dependent.
An employer may discover that the plan sets forth an undesirable definition of dependents that encompasses far more enrollees than intended. In this case, an employer cannot retroactively alter the definition or begin an audit using the desired definition.
Instead, the definition of a dependent should be redrafted for the start of a new plan year and the benefit of an eligibility audit may need to be reconsidered.
What does the process entail?
An employer may wish to undertake a comprehensive audit that will require specific documentation to verify dependent eligibility and that will impose removal of any dependent found to be ineligible.
In this case, an employer will be best served by contracting with a qualified third party to conduct the audit.
Alternatively, an audit may be a bit more lax by requesting that employees certify by signing an affidavit that their enrolled dependents meet the eligibility rules under the plan. Employees would have the opportunity to voluntarily remove any dependents who do not qualify.
This method will likely not yield the dramatic results that a more comprehensive audit will, but it may be a better fit for the company culture and for employee morale.
What kind of documentation may an employer request?
The most straightforward manner of verifying dependent eligibility is to require employees to provide documentation to substantiate eligible status.
Marriage and birth certificates are adequate and are often readily obtainable by the employee. Additionally, a current lease, mortgage, or billing statement may properly demonstrate the residence of a dependent.
Just as important, though, is how the employer will handle a situation where the employee is unable to obtain and produce appropriate documentation. The employer should be proactive and plan ahead for such scenarios, and should apply the same strategy each time the situation arises.
What are some other important considerations?
Employers need to diligently plan the process, including whether and to what extent a third party will be involved, how the process will be communicated to employees, the time frame by which the audit will need to be completed, the action to take with respect to ineligible dependents and how the audit process will affect the workplace environment.
Finally, audits implicate various aspects of federal benefit laws. For this reason, employers should always consult with competent counsel prior to undertaking an audit to ensure that the employer will be able to navigate legal issues and remain in compliance. ●
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