RealLife HR Recommends Cost-Savings Tool: Dependent Eligibility Audit

Reducing the cost of providing healthcare insurance for employees is a priority for nearly every organization. With no end in sight to the rise in healthcare costs, and practically every option to curb healthcare spending exhausted (carrier negotiations, high deductible plans, etc), what can companies do now to control their healthcare spending?

The answer may lie with your HR department. For example, ask how the task of adding dependents to an employee’s plan is done and you’ll likely hear “We use the honor system for new hires and open enrollment.” Knowingly or not, your employees could be costing your company thousands of dollars by including ineligible dependents on your benefits plans.

Frequently, the assumption is that someone else in the benefits department is responsible for checking eligibility. To compound this, many other administrators no longer automatically check eligibility. Further, with limited time and resources in HR and benefits departments, dependent validation is a tedious item that doesn’t get done.

Typically, each dependent of an employee has benefit costs of $3,000-$5,000 annually. However, 2%-8% of these dependents may be ineligible to receive this coverage for a number of reasons – they are beyond the age limit, there’s a change in marital status (an ex-wife or ex-husband was not removed from the plan), death, or they are in fact not a legal dependent (i.e. nephew or grandchild) as defined by IRS guidelines.

Many companies are now turning to dependent eligibility audits to effectively qualify the benefits they provide to their employees and their dependents. The results of these audits can be staggering – potentially saving a company with 5,000 employees and 9,000 + dependents over $500,000 the first year!

In addition, such an audit would enable compliance under Sarbanes Oxley and ensure you have the adequate financial controls in place. Without this audit and ongoing controls, most companies are unaware of how much they’re actually spending on ineligible dependents.

The following tips can assist with how best to approach the dependent audit and to properly communicate it so that it is a positive experience for the organization as well as the employees.

Get Management Buy-In
You will get longer lasting internal support for a dependent audit by involving management throughout the entire process. Additionally, gaining their support is a good way to demonstrate that HR is doing everything possible to control the healthcare costs.

Hold an Amnesty Period
A dependent eligibility audit amnesty period should have a timeframe of approximately 30 to 90 days in which employees have the opportunity to confirm eligibility for each dependent. Many companies offer this one-time opportunity for employees to voluntarily remove ineligible dependents from their benefit programs without sanctions such as termination.

To implement an amnesty period, send a notification letter that should include:

• Specific information on eligibility criteria and the most current list of the individuals enrolled as dependents under the employee’s coverage.
• The list of valid documentation needed to verify all dependents – birth or adoption certificate, marriage license, etc.
• Terms and length of amnesty period.
• Clear statement of the consequences for keeping ineligibles enrolled.

After the 30 to 90 day grace period, send follow up letters and place phone calls to non-responders, as necessary. Every effort should be made to contact these employees. If an employee does not provide documentation, most companies then remove dependents that cannot be validated from the employee’s plan.

Reduce Exposure
What can happen when no there is no ongoing monitoring? Even with controls in place, there is still ongoing risk for exposure. For example, your organization could be paying claims for an ex-spouse who was maintained as an active dependent after divorce.

When you unknowingly pay for healthcare services for people who aren't eligible for benefits, you are unnecessarily adding to plan costs and negatively impacting your company’s health care insurance premium.

Use A Third Party To Conduct The Audit
This will allay any concern the employees may have for exposing themselves when asking a question regarding their dependent coverage. A third party firm, can create and manage a project plan, develop guidelines and communication materials, conduct employee mailings, and manage the removal of unsubstantiated dependents for employers and their insurance carriers.

Importantly, a third party can manage employee questions via call center support and produce reports to outline the savings. A call center offers anonymity which is often a critical component of the dependent audit. In addition, reports are created detailing the audit and its impact to the dependent population.

Summary reports are issued to show initial savings such as reduction in premium costs and ongoing savings such as reduction in claims exposure. In most organizations, the initial savings alone is more than enough to justify the expense to conduct the audit.

Conducting a dependent eligibility audit requires careful thought, planning, communication, and execution, as well as a long term plan to make sure proper controls are in place for future new hires and open enrollment periods. These controls have the real potential to ensure a maximum return on your benefits investment.