Does Your Health Plan Need a Dependent Eligibility Audit?
The short answer is yes. If you are not currently conducting ongoing verification audits or requiring employees to provide documentation when they enroll in benefits, then you should audit your plan.
An eligibility audit is a type of compliance review that is used to ensure that dependents, covered by the plan, are eligible to enroll based on the plan’s eligibility rules, as well as state and federal regulations. It is designed to identify dependents that should no longer be covered.
Several examples of dependents that should not be on your health plan include the following:
- Children that have met the maximum age limit;
- Misunderstandings as to who is eligible (e.g., grandchildren that live in the home);
- Divorced spouses; and/or
- Children impacted by changes in custody arrangements.
Audits can be performed one time, periodically or on an ongoing basis. Some companies perform the audits in-house, while others contract with an independent firm to conduct the audit.
There are several reasons to conduct a dependent eligibility audit, but the one that is probably top of mind these days is cost savings. Employers who offer benefits plans are always looking for ways to reduce the costs associated with providing benefits and a dependent eligibility audit is a great way to do so.
A study performed by Mercer found that between 3% and 10% of plan members are not eligible. When these plan members are removed from the plan, employers will quickly see a significant reduction in premium costs. Furthermore, they also reduce their exposure to potential costs should an ineligible member experience a serious illness and subsequent costly care. Most companies are reluctant or unable to recoup these costs after it is discovered that the dependent is not eligible.
A recent audit performed by UnifyHR provides a great example:
Additionally, the audit will ensure that the plan complies with ERISA requirements by verifying that plan eligibility rules, as provided in plan documents, are being followed.
Finally, the dependent audit process gives the employer the opportunity to define the eligibility requirements and what they consider to be an act of “fraud” or “intentional misrepresentation” to protect the plan from future unintended covered dependents. Healthcare reform includes a rule that says a group health plan cannot revoke coverage unless the covered individual has committed fraud or intentionally misrepresented details that are important to determine eligibility. Ineligible dependents could remain on the plan if there is no process in place to explain the right to remove ineligibles.
How does the audit work?
Generally, the employer or firm that is conducting the audit sends a letter to the employees explaining the audit and asking them to supply proof of dependent eligibility. When planning an audit, an employer should consider the following:
- What message will be communicated to employees and how will it be communicated?
- Are all plan documents consistent in defining dependents?
- Do plan administrators have accurate data? Before requiring employees to provide proof of dependent eligibility, make sure that you and your plan administrators are using the same data. In some cases, the vendor might not have the right information regarding dependent eligibility or might not be updating that information in a timely way as dependents’ status changes. These discrepancies should be dealt with before asking employees to provide proof of dependent eligibility.
- 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?
- Will you allow employees to voluntarily drop ineligible dependents prior to the audit?
- Will there be penalties? Many companies do not impose penalties as a result of an initial audit, instead emphasizing that penalties will be imposed for any future violations.
- How will employees perceive an audit? Are there other employee relations issues that need to be addressed prior to the audit?
Employee communication is a key aspect of a dependent eligibility audit. Employees should be informed in advance of the audit so they can gather the proper documentation and understand the consequences for not complying with the documentation request, and any consequences for having an ineligible dependent on the plan. Reminders should be issued frequently throughout the audit period to ensure the highest possible participation rate. Employers should explain the process and purpose of the audit carefully so that employees do not feel that they are being accused of wrongdoing. Be sure to note that better cost controls mean lower premiums for all employees.
Plan documents should also be amended and communication materials revised to reflect the process that will be followed in determining dependent eligibility going forward—frequency of audits, verification process, ramifications of enrolling ineligibles, etc.
What happens after the audit?
Most employers do not tie consequences to disciplinary action or loss of job. However, the ineligible dependent will typically be removed from the plan immediately or by the first day of the following month after the substantiation proves to be inadequate.