Reining in medical costs is an ongoing issue for employer clients. One way to address rising costs is to ensure everyone who is on the health plan is eligible to receive those benefits.
“Dependent audits are important for two reasons,” says John Garner, chief compliance officer at Pasadena, Calif.-based Bolton & Company. “The most obvious one is to hold down costs,” he says. “Perhaps more importantly, plan administrators have a fiduciary duty to administer the plan in accordance with the plan documents, which means that only eligible dependents should receive benefits.”
“Dependent audits can save money by avoiding claims for ineligible dependents,” he says. “In some cases it is possible to recover amounts already paid.”
When ineligible dependents remain on the plan to continue receiving a benefit, that’s when costs can add up for employers, agrees Kevin Schlotman, vice president at Cincinnati-based Benovation. For example, he says, when an employee and his or her spouse have recently divorced, the spouse is no longer eligible for benefits. Still, that can often get overlooked.
Most employees who add an ineligible dependent do so unwittingly, says Rachelle Maddaloni, director of technology and benefit administration services at AIA Benefits Resource Group, based in Mechanicsburg, Penn. “Very few employees are being malicious,” she says. “It really is a lack of understanding of an eligible dependent."
“We are regularly removing nieces, nephews, siblings,” she adds. “It’s important that employers have a process in place from the very beginning when someone is hired.”
If it’s a company’s first eligibility audit, the firm conducting the audit must reach out to every single employee so they understand the process, Maddaloni says. The employer and employees need to understand what their responsibilities are — both should be stewards of the plan, she says.
Quote“Very few employees are being malicious. It really is a lack of understanding of an eligible dependent."
Once the definition of an eligible dependent is determined, it’s crucial that all employees understand what that means. An enrollment guide, with that definition listed as the first item, is recommended, Maddaloni says. It’s also essential that the definition of an eligible dependent is consistent among all contracts and the plan document, she adds.
If a good process is in place, employers won’t need to conduct full audits every year, Maddaloni says. Still, employers should ensure that dependents of new employees are eligible, she says, and after open enrollment has concluded is a great time to check.
There isn’t a standard for how often full audits should be conducted, Garner says. “Doing one every year is probably not necessary, unless there is a great deal of turnover and no documentation required when enrolling dependents,” he says.
For employers with little turnover, an audit should be conducted about every three years, says Schlotman. Plans that require spouses to use their own insurance should be audited more frequently, he adds.
Often, employees view audits negatively, assuming that their employer is trying to kick some people off of the plan, Schlotman says. In reality, he says, audits help employers do what’s best for the plan in the long-term — higher claims result in higher premiums for everyone on the plan.
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