Audits that yield returns Featured

8:00pm EDT September 25, 2008

In the quest to stem rising health care costs, more executives are initiating dependent audits with some surprising results. On average, 8 to 12 percent of the plan’s covered dependents don’t meet the eligibility requirements, and one in four is an ineligible spouse, not a child. While audits often produce savings, employers should consider a few best practices to optimize the return and preserve employee good will during the process.

“The savings opportunity will vary depending upon the company’s premium contribution for dependent coverage, the employee base and the scope of the audit; however, in most cases, there are significant savings to be had,” says Greg Mansur, national leader of Administrative Performance Review Services at Watson Wyatt Worldwide. “Companies must look at their demographic profile, cost-sharing structure and potential ROI under different scenarios, and then define an audit scope and timing for the project.”

Smart Business spoke with Mansur about the potential savings and the best practices around dependent eligibility audits.

How have ineligible dependents crept onto group coverage rolls?

Benefit packages are vital in recruiting and retaining employees, so human resource professionals are often reluctant to make employees jump through hoops to prove eligibility. Initial enrollment is often completed online, and there’s no practical way to require or submit eligibility documentation during this process. Employees do a better job of adding dependents to a plan than removing them. It’s just too easy to forget that your son or daughter is now finished with college and is no longer eligible for benefits.

Comprehensive audits, where all of the dependent population is verified for eligibility, are a relatively new phenomenon and haven’t been part of the traditional audit budget for HR. With word spreading about the potential savings, more CEOs and CFOs are requesting dependent audits.

What should CEOs consider when determining the appropriate audit scope?

It’s possible to develop savings scenarios based upon the demographics of the employee population because historical data dictates that certain profiles yield certain returns. While a comprehensive audit costs more, it produces the greatest return and allows the company to work from a clean slate in maintaining savings by initiating enhanced validation procedures. Alternatives include auditing a random sampling of employees or specific employee segments, but can have limitations by being too narrow in scope to realize significant savings or potentially alienating groups of employees.

What are the best practices for launching an audit?

The first step is to establish an effective audit communications plan. It’s important for CEOs to articulate why the audit is necessary and to help employees see how this effort is good for everyone. Communicate the simple message that maintaining an affordable health plan works for the benefit of every employee; I think that message makes more sense in an era of greater cost sharing. Of course, explaining that an audit might occur means giving employees advanced warning about the timing and any documentation they must furnish. This gives them time to ‘self-audit’ the dependents they have enrolled and remove those who are ineligible, saving employees from an uncomfortable situation when the audit does occur. An amnesty period where employees may remove ineligible dependents without repercussions is always a great way to start an audit.

What happens during the subsequent audit phases?

Continue to articulate the audit process and the timeline and spell out the ramifications, such as the date when all unverified dependents will be removed from coverage. Many employers outsource the verification process because they lack the internal resources and the technology, and trained representatives can advise employees about how to obtain documentation, such as duplicate copies of marriage certificates.

Finally, establish an extension/appeals period to allow employees to challenge an audit decision and to allow those who have been nonresponsive extra time to produce supporting documents prior to removing their dependents. These extra measures can help to demonstrate the fairness of the process.

How can employers maintain dependent eligibility and savings?

Initiate a policy requiring employees to present eligibility documentation when new hires sign up for benefits or existing employees add dependents to group coverage. Some employers are requiring employees to sign affidavits or check pop-up boxes online stating that they understand the health plan eligibility rules and the penalties for noncompliance. Randomly audit a few employees each month who have dependent coverage to make certain the dependents are still eligible and request documentation if needed. Be sure to communicate to employees that ongoing audits are now standard operating procedure. With greater rigor and oversight, the corporate culture will change and employees will do a better job of self-policing the eligibility of dependents.

GREG MANSUR is the national leader of Administrative Performance Review Services at Watson Wyatt Worldwide. Reach him at (818) 623-4780 or