Reducing overall costs is a top priority in almost every organization and employee healthcare costs are a main focus. With no end in sight to rising healthcare costs and practically every option to curb healthcare spending exhausted, what can employers do? The answer may lie in something as simple as making sure the people you have covered under your health plan are actually eligible for coverage. A dependent eligibility audit may be an option.
Dependent eligibility audits are used to identify ineligible dependents that are enrolled in your benefit plans. Examples include children that have met maximum age or student status, divorced spouses, or children impacted by changes in custody arrangements. Estimates show that 3 to 12 percent of covered dependents are not actually eligible. This can translate into significant cost savings for employers.
When planning an audit, an employer should consider the following:
- Are all plan documents consistent in defining dependents?
- What will the scope of the audit be and who will perform it?
- What documents will satisfy proof of eligibility for various types of dependents?
- What will be the message communicated to employees?
- How will employees perceive an audit? Are there other employee relations issues going on?
- How will privacy issues be addressed?
One of the most essential aspects of a dependent eligibility audit is employee communication. Employees should be told in advance of the coming audit so they can gather the proper documentation. Also, they should be reminded frequently throughout the audit period to ensure the best possible participation rate. Use already established mediums for communicating the message, including your company intranet, e-mails, bulletin board postings, payroll stuffers, etc.
Typically there are two steps to a dependent eligibility audit.
Employers establish a period of amnesty where employees can voluntarily remove ineligible dependents. Employees are notified by letter, explaining eligibility rules. An employee can then review all covered dependents for status, and no penalty will apply to those dependents removed because they no longer qualify. Employers generally give employees one month to respond. Ineligible dependents are terminated at the end of the following month.
For all remaining dependents after the initial amnesty period, employers should require employees to provide documentation to verify dependent status/relationship. Documents must establish both a dependent relationship and that the relationship still exists. Examples may include:
- Marriage certificate
- Domestic partner affidavit
- Legal documents that establish custody, guardianship or foster care
- Birth certificate
- Tax status form
- Medical documentation of disability
- Adoption papers
If an employee is unable to establish a dependent relationship, employer may impose penalties or seek reimbursement for claims paid for ineligible dependents among other solutions.
Many companies find that hiring an independent audit firm may be desirable as the auditing process can be cumbersome and time-consuming. While an audit of this nature may seem extreme, so is unknowingly paying for healthcare services for people who are not eligible. A dependent eligibility audit provides compelling evidence and helps to preserve the integrity of your corporate benefits package. For more information on dependent eligibility audits, contact your employee benefits advisor.