Ineligible receivers

If you haven’t audited your employees’ dependents, your organization’s health care plan may be carrying an unnecessary financial burden.

With health care costs rapidly increasing and a renewed focus on efficiency, many companies are using dependent eligibility audits to verify that they are only insuring whom they must.

“Conducting a dependent eligibility audit not only immediately contributes to the management of health care costs and risk compliance, but it produces results which are easily measured generating an exceptional ROI,” says Thomas Scurfield, senior vice president at Aon Risk Services Inc. “The audit complements existing and future strategies to contain health care costs.”

Smart Business spoke with Scurfield about how dependent eligibility audits can trim your health plan costs.

Why would companies need a dependent eligibility audit?

Under the Sarbanes-Oxley Act, CEOs and CFOs must certify that their companies’ quarterly and annual filings are true and omit no material facts. Given the magnitude of health care spend, CFOs may want assurances that benefits are paid only to eligible plan participants. Also, benefit plan fiduciaries have a responsibility to spend plan dollars on what they should be spending them on. ERISA fiduciary responsibility includes the exclusive benefit rule, so using plan assets to pay benefits for ineligible dependents is a violation of the exclusive benefit rule.

With today’s challenging economy, plan sponsors must demonstrate to employees that they are doing everything they can to manage the plan and the plan’s costs. Paying for ineligible dependents can put a financial burden on both plan participants and the plan sponsor. An audit immediately contributes to the management of health care costs and risk compliance in a manner that is comprehensive, business oriented and innovative.

Why should companies be concerned about dependent eligibility audits?

Employers continue to experience significant health plan cost increases. Global competition requires plan sponsors to manage total employee compensation expenses as efficiently as possible. Depending on how health plans monitor enrollment of dependents and the size of the plan, employers in every industry could be incurring two to six percent, and sometimes as high as 10 percent, in additional dependent health plan costs.

The most common reasons for having a high percentage of ineligible dependents are:

  • Inconsistent or lack of internal eligibility processes and procedures
  • Improper communication about eligibility requirements
  • Multiple acquisitions and divestitures, which can often lead to multiple plans and eligibility criteria
  • Shortage of internal HR resources to manage and/or conduct periodic audits of dependent eligibility

How can employers improve the dependent eligibility verification process?

After conducting an audit, the employer should include a dependent eligibility verification process for new hires. This would require new hires to provide documents that verify their dependents. So, in addition to a social security card and the other documents required in the new hire process, applicants would need to bring in copies of their marriage licenses, dependent birth certificates and/or copies of recent 1040 tax forms.

Every year at open enrollment, employees should sign an affidavit confirming that the dependents they have enrolled in the health plan meet the eligibility requirements of the plan. Many companies have not required new employees to provide dependent eligibility documentation. But, some are starting to do that and some have been doing it for a few years now. Employers are using dependent audits to eliminate current ineligible dependents and are adding dependent eligibility documentation in the new hire process.

What can employers do to prepare employees for a dependent eligibility audit?

Tell the employees the purpose of the audit and let them know the audit is prospective. Also, let employees know they have amnesty, so if they had ineligible dependents in the past, you will not hold that against them and they won’t have to repay claims.

One of the largest issues is that most employees don’t understand their benefit plan’s definition of an eligible dependent. For example, many employees don’t know that an ex-spouse is not an eligible dependent. The employee’s divorce decree may require them to provide health coverage for the ex-spouse, but the ex-spouse is not an eligible dependent under most health plans (i.e., spouses don’t have COBRA rights).

When you do the audit you get rid of those ex-spouses. If they are insured, the employer saves the premium. If the employer is self-insured, they eliminate the ineligible spouse’s claim expenses.

The same thing applies for dependent children. Dependent audits always find ineligible dependent children who no longer meet the plan’s definition of a dependent child. In many instances, the parents forgot to contact their employer when the child completed school. The definition of an ineligible dependent child depends on the plan. Usually the limit is 19 years old, unless he or she is still in school — then the plan could cover the student until he or she is age 23 or 25.

How can companies know if their process is working?

At the end of the audit, the audit firm will provide a report of ineligible dependents removed from the plan. Employers should re-audit on a periodic basis because eligibility status changes. Once the first audit is completed, you should re-audit in three years. If the process is working, employers should see the documented savings from the elimination of ineligible dependents.