Dependent Audits: What Is Their Function?

Tuesday, May 25, 2010

In an era of extremely tight corporate budgets coupled with soaring employee benefit costs, organizations frequently conduct dependent audits in an effort to identify and remove ineligible employee dependents from company benefit rolls. Over time, as employees co-habitat, marry, have children, divorce, re-marry, and children age-out; it is likely that ex-spouses and over-age children are inadvertently left on an employee’s benefits. Employees may declare a significant other as a legal spouse with little or no thought given to the financial impact to their employer. Unless an organization periodically conducts a dependent audit to determine the legal status of claimed dependents, it is likely that over time a company’s benefits rolls will include a significant number of ineligible employee dependents. Hewitt Associates LLC, a nationally recognized HR consulting firm, estimates that a typical audit identifies that 4% to 8% of employee dependents are ineligible for coverage under the employee’s benefit plans. While 4% to 8% may not sound like a large number, consider that with 2009 health care costs running at approximately $9,000 per enrolled participant, every 100 dependents could yield excess claims costs of $36,000 to $72,000.

A common practice in conducting a dependent audit is to require employees to verify dependent status by submitting copies of marriage licenses, birth certificates, adoption orders, medical support orders or other relevant documents for enrolled dependents. Employees are provided with a list of dependents currently covered under their employer’s benefits plans, including, health, dental, life, disability, and other programs and given 30 to 60 days to respond with proof of dependency. During the response window, employees generally may remove any covered ineligible dependents without fear of negative repercussions from the employer's benefit Plans. Employees who self identify their ineligible dependents are typically not required to reimburse their employer for any incorrectly paid claims. However, if an employee fails to remove an ineligible dependent and the employer discovers an ineligible dependent later, the employee may be subject to the disciplinary policies of the organization, including termination of employment.

While a dependent audit is certainly helpful in identifying and managing ineligible dependents, by their very nature, the employer may have already paid out thousands of dollars in claims and premium expenses by the time the ineligible dependents are removed. A more proactive practice would be to ensure that an organization’s enrollment processes, policies, and practices prevent ineligible dependents from every being added to the employer’s benefit rolls.

Simple practices include: 

1. Require proof of dependency at time of hire, benefit’s eligibility status change, and/or enrollment for spouses and children.

2. Require proof of dependency at time of marriage, birth or adoption.

3. Validate medical support orders prior to implementation.

4. Require proof of enrolled children’s age.
    (Patient Protection and Affordable Act allows coverage through age 26.)

5. Track the DOB for children and monitor their age.

6. Provide annual total compensation statements listing any covered/enrolled dependents.

7. Ensure that all employee communications clearly state dependent eligibility requirements.

8. Periodically review employee benefits enrollment processes, procedures, and practices to ensure they are compliant with Federal, state, and local laws.

9. Periodically reconcile and balance carrier enrollment reports against payroll/HRIS data to ensure plan and tier enrollments match.

10. Monitor LOA’s and COBRA enrollments to ensure that ineligible dependents are not added.

As with all issues dealing with employees, well planned communications in advance of any potential change in the employment relationship is essential to achieving the desired and successful outcome.