With health care costs continuing to rise, many employers are turning to their health plans to find ways to cut costs. And one way to do so is to make sure that your health plan covers only those who are eligible, which can result in significant cost savings. Most employers do not like to hear the word audit, but a dependent eligibility audit can save a business a significant amount of money on their employee benefits, says Craig Pritts, a sales executive with JRG Advisors, the management arm of ChamberChoice.
“The objective of a dependent eligibility audit is to identify dependents who are not eligible to be on the health plan,” says Pritts. “Those can include dependents who have exceeded the age limit that allows them to be covered, divorced spouses or even friends, roommates or other relatives who are not eligible.
It is estimated that between 3 percent and 15 percent of dependents on an average plan are not actually eligible for coverage. And just one ineligible participant can have a substantial impact on a health plan, depending on the costs of their claims.
Smart Business spoke with Pritts about how performing a dependent eligibility audit and removing ineligible dependents from a health plan can translate into significant cost savings for employers.
Why should employers consider performing a dependent eligibility audit?
ERISA includes stringent eligibility rules for plan sponsors, and employers need to ensure that all plan documents, including the summary plan description (SPD), are consistent when defining dependents. A dependent audit helps ensure that you are in compliance with ERISA by providing benefits only to eligible participants.
It is recommended that plan documents be amended to reflect the process that will be followed in determining dependent eligibility going forward, i.e., frequency of audits, the verification process, potential penalties, etc.
One important factor to remember is the rule for dependent children based on the 2010 Patient Protection and Affordable Care Act (PPACA). For all plan years beginning on or after Sept. 23, 2010, children can be considered dependents until age 26, regardless of marital status and student status.
What are the steps to performing an audit?
There are typically two steps to performing a dependent audit. First, employers should establish a period of amnesty during which employees can voluntarily remove ineligible dependents from the plan with no penalty. The most common way of doing this is to notify employees of eligibility rules in writing so that they can review the status of covered dependents. Employers generally give employees one month to notify them of ineligible dependents they may have on the plan. Ineligible dependents that are voluntarily removed are then terminated from the plan at the end of the following month.
Second, for all dependents remaining on the plan after the initial amnesty period, employers should require employees to provide documentation to verify the dependent status/relationship and to confirm that such a relationship still exists. Examples of required documentation could include marriage certificates, domestic partner affidavits, birth certificates, adoption papers, tax forms, etc.
If an employee is unable to show proof of a dependent relationship — or declines to do so — the employer may impose penalties, terminate coverage or seek reimbursement for claims that were paid for dependents during the time in which they were deemed to be ineligible. While employers typically do not seek disciplinary action as a result of the initial audit, this is an option.
Many cases of dependent ineligibility are the result of oversight, such as forgetting to remove a child when that child reaches the maximum age limit, but other instances, such as failing to remove a former spouse, or stepchildren who live elsewhere, can be intentional and can be a serious issue to the employer. The health plan’s ability to provide for its intended beneficiaries is significantly compromised when ineligible dependents receive benefits.
Who should conduct the dependent eligibility audit?
Many employers choose to hire an independent firm to conduct an audit. This can be done on a risk-sharing basis, in which payment to the firm is based on the percentage of recovered amounts or estimated savings as a result of the removal of ineligible dependents from the plan. Using an outside firm can help your business with your employees’ perception of the independence and objectivity of the audit and make them less suspicious of the company gathering what they may perceive to be private information.
For a smaller employer who chooses to perform the audit internally, this may result in additional work but the potential savings can be worth the time and effort exerted to do so. It is important to weigh your company resources against the potential payoff of cost control and ongoing risk exposure when determining if a dependent eligibility audit is right for your company.
Talk to your benefits advisor to learn more and determine if a dependent eligibility audit is right for you. Because as many as 15 percent of dependents enrolled in a plan may not actually be eligible, spending money on an audit could prove to be an investment that saves your company a significant amount of money.
Craig Pritts is a sales executive with JRG Advisors, the management arm of ChamberChoice. Reach him at (412) 456-7253 or [email protected].
Insights Employee Benefits is brought to you by ChamberChoice
