There are a number of ways ineligible dependents end up receiving improper benefits from employers that do not have safeguards in place. Honest mistakes include mistyped and inaccurate birth dates, divorces with misunderstood court orders of coverage, and confusion at the employee level as to what constitutes “a dependent.” An unfortunate reality, however, is that nefarious behavior also exists in a small segment of the population, intentionally defrauding employers for health care coverage of ineligible dependents. Regardless of intent, ineligible dependents receiving coverage negatively impact employers as well as those employees with their legitimate, benefit eligible dependents.
Based on hundreds of conversations with our clients, here are the top 5 benefits of conducting a dependent verification audit:
1. Dependent audits produce significant savings
It’s a widely accepted fact that dependent audits reduce the cost of a health plan by up to 5% first year, or by an average of over $3,000 per dependent removed. More recent data shows that ineligible dependents actually cost more than the average eligible dependents because in many cases they need the health care coverage and thereby increase the risk pool and premium costs. Instant savings occur right when the ineligible dependent is removed (no more premium costs or claims). With PPACA all Americans are guaranteed affordable healthcare regardless of pre-existing conditions – just make sure it’s not your company and employees paying for the ineligible dependent benefits.
2. Dependent audits strengthen benefit plan compliance
Your next dependent audit will strengthen benefit plan compliance under Sarbanes-Oxley, HIPAA, and DOL guidelines (including ERISA). It’s pretty clear that benefit plan audits are a standard industry practice. Failure to keep compliance opens your company up to unnecessary risk of violating several laws and regulations, not the least of which are the “prudent man” provision and the “exclusive benefit” clause of Erisa.
3. Dependent audits improve employee understanding & appreciation of company benefits
Through a dependent audit, employees learn proper eligibility rules of their dependents. Many ineligible dependents are added by employees that do not understand what constitutes eligibility, and this is particularly true for employers with employee populations where English is a non-native language. Dependent audits also remind employees that benefits are just that – a benefit. Health care is not an entitlement for dependents, there is no requirement by most employers to extend coverage beyond employees. Being asked to verify dependents reminds employees that health benefits for the family are a perk of employment, not something to be taken for granted.
4. Dependent audits create a culture of compliance
A dependent audit benefits the employer in a fourth way by supporting an environment of compliance. There are safety regulations, whistleblower protections, discrimination laws, and countless additional rules that employees are already made aware of. The requirement to verify dependents is a natural extension of an organizations’ culture of compliance. Employees understand that submitting verification documents is just a compliance requirement to add dependents to benefits coverage.
5. Dependent data is validated
Dependent audits ensure accurate benefit plan information. Benefits coverage expires for dependents at specific ages or based on employee-dependent relationship changes, but without dependent verification employers have no way to validate the accuracy of ages or relationships to the employee. Fraudulent names, birth dates, and relationships are corrected during an audit, as well as the potential for employee address information, phone numbers, and even email addresses.
Conducting a dependent audit benefits not only the employer, but participating employees as well. In addition to realized savings, plan sponsors find compliance with numerous statutes, an increased culture of compliance among employees, deeper appreciation for existing benefits from the workforce, and clean, actionable benefits population data. The only employer debate when it comes to dependent audits should be when to get started, and the best time to start is now.