5 questions to ask about dependent verification
The concept of dependent verification, often times referred to as a dependent audit, has gained popularity in recent years, but the process and strategy still remain misunderstood by many advisers, corporate executives and benefit teams.
Audit is often perceived as a negative term, as in, “Hi, we are from the IRS and we are here to audit you.” Because of that, I recommend removing the term “audit” and replacing it with “review.” A dependent review is a much more palatable description for this critical process, which protects not just the employer, but also the employee and his or her loved ones from future legal and financial risk.
Let’s begin by defining what a dependent verification review should and should not be. It should be a trueing up of who is enrolled in a healthcare plan with who is actually eligible based on the plan rules. It should bring peace of mind to employees knowing their loved ones are in fact covered. It is also legal and financial protection for the employee.
A dependent verification review is not a fishing expedition or witch hunt. It should not be an accusation of anyone or a punishment process for an employee who unknowingly adds an ineligible dependent to a plan. It should also not be a way to remove eligible dependents because an employee makes a mistake in completing a verification process. Making the process too difficult will result in errors and negatively impact HR workload and employee morale.
Clearly, removing ineligible dependents before they file claims that should not be covered protects the employer. In addition, employers also have a stewardship responsibility. As the plan owner, they are in charge of the money that provides for coverage. They also manage the funds provided by the employee population in the form of premiums. Allowing ineligible dependents to be on the plan adds to the high price of claims filed. It also increases the cost of coverage for the following year for both fully insured and self-insured plans. Plan owners should be aware of their responsibility to all parties involved.
In addition to protecting the financial cost to employees, dependent reviews protect employees in other ways. Claims filed on a plan for an ineligible dependent could be the responsibility of the employee, if discovered. The employer and the health care provider may have legal recourse to seek repayment directly from the employee if the claim is denied due to eligibility.
In cases of divorce, a divorce decree may order an employee to maintain coverage on a former spouse and stepchildren, which could result in a large financial obligation for the employee. The employee may also be in violation of the court order because coverage was not provided and further legal trouble could be pending. Former spouses and former stepchildren are rarely eligible for coverage on an employer’s group healthcare plan.
Streamlining the process
1) Who should consider conducting a dependent verification review?
A good rule of thumb is any organization where the HR team doesn’t know the names and family members of all employees and their families, along with statuses of each family member. Once an organization moves beyond a certain size, someone has to be accountable for maintaining vigilance.
2) Can we afford to ignore this area of concern?
Ineligible rates cost between 5% and 12% on average, and some industries or organizational structures are at an even greater level of risk. Even an average case with 1,000 dependents at an 8% ineligible rate equals 80 plan members that should not be on the plan. Once this is multiplied by the annual plan costs per individual, the savings are may be over a quarter of a million dollars per year.
3) When should we conduct a dependent verification review?
The best time to conduct a dependent verification review is the first quarter following annual enrollment. If that timeline isn’t possible, the second or third quarter following enrollment is the next-best option. It is not recommended that an organization complete a review during annual enrollment. The list of dependents on the plan is fluid during the enrollment period and changing rosters can result in someone falling between the cracks. Additionally, a review takes longer than most enrollment periods last and publishing different due dates for different processes can become confusing for employees.
4) How much time should an employer give an employee to verify the dependents that are on the plan?
The industry standard timeframe is six weeks. Following that six weeks with an unannounced grace period is also recommended. Often called an “appeal” phase, the added time should not require additional steps or hoops for an employee to jump through, only require them to finalize any document submission that is outstanding. This time is typically not announced until after the six weeks is up so that employees give their best effort in meeting the original deadline.
5) What should we do to prevent ineligible dependents from returning to the plan?
Without follow up and ongoing monitoring of dependent additions, realized savings will be reduced over time. Ineligible rates will typically return to what they were originally within three to five years. Once the plan is clean, monitor it at regular intervals to keep it clean.