Auditing a dependent’s eligibility
Trust, but verify. Once viewed as too intrusive or a low priority, dependent eligibility audits have gained momentum as employers realize that the benefits and savings from these audits far outweigh inaction or potential employee pushback. Conducting these types of audits can also reduce compliance risk under ERISA and DOL guidelines. Between 4-10% of enrolled dependents do not meet eligibility requirements and are considered ineligible for coverage. This is due to increased usage of self-service online enrollment, loose eligibility vendor controls and plans that exclude spouses from coverage if it is offered through their employer without a process to verify.
How is a dependent eligibility audit performed?
The type of dependent eligibility audit and the processes used may vary greatly from one vendor to the next. For the most part, many vendors will plan the audit closely with the employer’s human resources personnel. This time period allowed for audit planning and how much time an employee may have to comply with the audit’s request may vary depending on each vendor’s methodologies. At the end of a planning phase both parties usually come to an agreement on the audit’s timeline, communications and objectives. The vendor or employer often decide to announce the audit and its purpose to employees prior to implementation.
Typically an audit is conducted via mail and/or email. Employees and their dependents are sent forms and letters indicating which dependents they have enrolled and what documentation is needed by the vendor to verify each dependent’s eligibility. Some vendors may provide a Call Center and website to assist audit participants with the process. At the audit’s conclusion the employer will receive a list of dependents who did not meet the audit’s eligibility requirements established at the audit’s onset.
Why consider an outside vendor?
Dependent eligibility audits, sometimes also referred to as a dependent audit, verification audit, or dependent verification audit, typically involve hiring an outside vendor to verify the eligibility of all enrolled dependents in the company’s health plans.
Many organizations don’t realize that conducting a dependent eligibility audit internally will be a significant undertaking. At a minimum it will require the organization to:
Hiring an outside vendor provides a buffer between human resources personnel and employees to ensure objectivity while also minimizing conflict. An experienced and knowledgeable dependent eligibility audit vendor may also compare the language of multiple plans against each other and current administrative procedures to identify and report potential discrepancies. At the conclusion of the audit the entire organization has a much better understanding of eligibility verification requirements in order to maintain dependent eligibility going forward.
Review plan documents to determine the definitions for all possible eligible dependents.
Determine the documentation required for substantiating eligibility. For example, in the case of a spouse, this may be not only a marriage license or certificate, but also a recently filed joint income tax return to show that the marriage continues to the present day.
Establish a timeline for informing employees about the audit as well as a deadline for submitting the required documentation.
Develop and distribute communications and materials accordingly.
Determine the process by which employees can submit their documentation, and set up a mechanism to receive and process materials.
Assign a knowledgeable person or persons to field employee inquiries since the audit will likely generate questions.
Review submitted documentation to determine whether it meets the requirements for establishing eligibility.
Establish a notification process for employees who fail to submit materials properly and/or on time.
Inform employees of the audit results.
Arrange for secure storage and/or disposal of the materials employees have submitted.
Key Considerations when selecting an outside vendor
Due to their popularity the market has been flooded with a variety of companies who conduct dependent eligibility audits in similar yet very different ways from one another. It is important that organizations do their homework before engaging with any vendor.
A few key considerations or questions to ask:
How long has the vendor provided audits?
Does the vendor offer additional services or products that could be considered a conflict of interest?
What is the vendor’s average audit response rates?
Is any part of the audit or Call Center outsourced or subcontracted?
What options do audit participants have to submit required information and ask questions?
What is the frequency and type of communications that audit participants will receive?
Is the verification process employee and HR friendly?
What level of employer customization is allowed?
What is included in the price and what may be extra?
Comprehensive dependent verification
A comprehensive dependent eligibility audit is a complete documentation-based verification audit of all enrolled dependents within an organization’s health plan(s). This is an industry standard and most popular among all employers. The process is relatively quick, conducted primarily through mail or email and lasts a few months at most. Most professional firms offer the assistance of a Call Center and website to assist employees with completing verification process. In addition, some firms can also make recommendations to clarify plan language and eradicate discrepancies. The end result leaves the employer with an accurate list of dependents that failed to meet the employer’s specific eligibility requirements.
Maximum Return on Investment
Few forms of health care cost containment activities provide such immediate savings. Given the fact that an individual dependent costs an employer an average of $5,000 annually, it’s not uncommon to achieve returns on investment ranging from 100% to over 5,000%. It is important to note that these savings continue each year following the audit had the ineligible dependent remained enrolled.
Is it Right for my Organization?
This type of dependent eligibility audit may be ideal if the organization has:
Never conducted a dependent eligibility audit.
Not conducted an audit within the last 2 years.
Experienced high turnover or acquisitions.
Made significant changes in their coverage or eligibility rules.
No consistent method of documenting or verifying eligibility of enrolled dependents.
Affidavit-only Dependent verification
An affidavit-only dependent verification is a less comprehensive audit that may rely on the employee to simply attest through an affidavit that any enrolled dependents meet the plan’s eligibility requirements. Compared to a comprehensive dependent eligibility audit, this type of audit is less common, but the process is much quicker since the employee is not required to locate and send in copies of marriage or birth certificates for review and processing.
An affidavit-only dependent eligibility audit usually identifies fewer ineligible dependents since the audit is based more on the employee’s honesty than proving eligibility. Nonetheless, these types of dependent eligibility audits often result in employees coming forward to report ineligible dependents usually based on misinterpretation or understanding of eligibility rules.
Is it Right for my Organization?
This type of dependent eligibility audit may be ideal if the organization:
Has an internal compliance requirement.
Has limited tolerance for potential employee pushback or a strong paternalistic culture.
Has some method of documenting and verifying eligibility.
Conducted an audit within the last 2 years.
Wants primarily to educate and remind employees about eligibility requirements.
Spousal Carve-out/ Surcharge Verification
With the implementation of health care reform, many employers have attempted to shift health care costs by encouraging spouses to enroll in coverage offered by their own employer when available.
To minimize any potential disruption and promote efficiency, most organizations choose to conduct this type of verification within a comprehensive dependent eligibility audit. This also ensures the dependent is in fact eligible to begin with. The savings can quickly add up with spousal surcharges averaging $50-250 per month and annual per dependent costs of $5,000 or higher.
Is it Right for my Organization?
This type of dependent eligibility audit may be ideal if the organization has:
Never conducted a dependent eligibility audit or verified these eligibility provisions.
Large numbers of enrolled spouses or other dependents who qualify for coverage.
Recently introduced a spousal carve-out, surcharge or other eligibility provision.
Ongoing dependent verification
After the conclusion of a dependent eligibility audit an organization may prefer to continue to outsource dependent verification periodically due to limited internal resources. Circumstances such as life events, new hires, open enrollment and acquisitions throughout the year can increase an employer’s chances that ineligible dependents may be enrolled.
Ongoing dependent eligibility audits are typically conducted on a shorter timeline and usually occur quarterly, biannually or annually.
Is it Right for my Organization?
This type of dependent eligibility audit may be ideal if the organization:
Lacks the necessary resources and expertise required to oversee an internal program.
Experiences frequent employee turnover.
Added new unverified dependents through acquisitions.