With the Affordable Care Act delayed, a dependent eligibility audit is a smart idea.
by George B. Woznak
Managing Director, Magis Technology Group
The delay of the employer mandate portion of the Affordable Care Act gives employers the opportunity to weed out ineligible dependents from their healthcare insurance rosters and realize savings that have the potential to offset a very significant portion of the expected increases associated with the act.
Dependent eligibility verification audits conducted by both large and small organizations show that on average between 3% and 8% of dependents enrolled in employer-sponsored health care insurance plans do not meet the eligibility criteria for receiving benefits.
At an average annual healthcare insurance cost of $2500 per dependent, there are few opportunities available to employers that allow them to slash health care benefit costs as quickly and as effectively as an audit that verifies that only those individuals who are qualified to receive benefits are enrolled in an employer’s plan.
A dependent eligibility verification audit is a compliance review that compares a plan’s eligibility rules to the dependents who are actually enrolled in the plan and identifies those individuals who should be removed from coverage because they do not meet the criteria to participate. Examples of individuals that should be removed include divorced spouses, children and grandchildren impacted by changes in custody arrangements, children that have met the maximum age limit, or adult children who are eligible for coverage offered by their employers.
Beyond the significant positive economic impact, a dependent eligibility verification audit also supports ERISA compliance by verifying that the health care benefit plan eligibility rules contained in the plan administration documents are appropriately executed.
The eligibility audit begins by requesting that all employees with dependents enrolled in the healthcare benefits plan confirm that their enrolled dependents meet the definition of a dependent as set forth in the plan. During this phase of the audit, employees are given the opportunity to voluntarily remove those who do not meet the eligibility requirements. Generally, employers do not impose any type of penalty when an ineligible dependent is voluntarily removed from the plan.
During the next phase of the audit, those employees with dependents remaining on the plan are required to submit documentation verifying each dependent’s relationship status. The audit process is designed to establish that both a dependent relationship exists and that the current relationship adheres to the eligibility criteria of the plan. Documentation that may be used to verify eligibility are marriage certificates, tax documents, birth certificates, legal documents that establish custody, guardianship, or foster care, and adoption papers.
If proof of a dependent’s status is not provided, coverage is terminated and the individual may be eligible for COBRA benefits. In some case, the employer may choose to seek reimbursement for the paid claims or the associated cost of coverage for the ineligible dependent. However, this rarely occurs and most employers simply terminate coverage for the ineligible individuals.
The economic impact of eligibility audits is striking for both large and smaller organizations. Among larger organizations, reported annual savings in healthcare insurance costs may be in the seven figure range with smaller organizations finding annual savings that makes the audit a very attractive exercise.
For one northeast Ohio organization with 450 employees, a recent audit determined that 5.2% of the enrolled dependents were not eligible for benefits under the employer’s healthcare plan. The removal of the ineligible dependents created additional cost saving opportunities by changing the benefit coverage of several of the affected employees from family coverage to the lower cost individual coverage. This audit produced an annual reduction in healthcare insurance costs that will exceed $160,000.
Dependent eligibility verification audits require thoughtful planning that begins with an employee communication program that corresponds to the culture and the nuances of the organization. Additionally, the audit process requires experience in document analysis and authentication as well as vigilance in the secure handling of documents that are submitted by employees. Because these requirements are crucial to the successful execution of the audit, employers almost always seek the assistance from an outside agency to conduct their audits.
Firms that specialize in dependent eligibility audits provide the requisite levels of technological support for document safeguards, call center functions to facilitate employee inquiries, and staff who are experienced in dealing with unique family situations and circumstances that may need special handling.
For most organizations, the audit process can typically be completed in three to four months. After the completion of the audit, the savings are realized immediately through reduced claim payments and adjustments in premiums related to modified coverage for some employees.