Dependent Eligibility: Top Three Reasons Why You Shouldn’t Audit
Recently, UBA Partner Mike Humphrey, Senior Benefits Advisor at The Wilson Agency, shared some great insights for those who are considering doing a dependent audit. He points out three reasons why you shouldn’t do these audits and offers a much better approach to reining in costs associated with covering dependents that should no longer be on your plan. Humphrey’s long tenure counseling large employers shows once again that sometimes quick-fix solutions for eliminating wasteful spending aren’t worth it in the end, no matter how well intended. Instead, simple changes to the up front enrollment process can avoid a lot of headaches and keep costs in line.
Here’s what he says:
Have you been considering a dependent audit and wondering if it is really worth it?
From personal experience, having done dependent audits, I can say that it is questionable.
The main idea behind a dependent audit is that it will save employers money by finding and removing all the dependents that should no longer be on the plan, for example divorced spouses or aged-out children. These audits can be done using internal resources or, more often than not, contracted to an outside vendor who can manage all the paperwork. Some vendors claim they save employers a lot of money through dependent audits. But, I have a different experience and point of view that may save you the time, trouble and expense of going through an audit.
The reason why a company may consider a dependent audit is the belief that many of the “dependents” on the health plan are not eligible and are costing the company money.
But is the amount of money that these dependents “may” be costing the company worth the expense of a dependent audit? Maybe not for self-insured plans.
Most dependent “children” that are on the plan are not even using the plan and, in the case of marriages, an employee who wishes to keep an ex-spouse on the plan can still send in the original marriage certificate and claim they are still married.
Dependent audits aren’t cheap. The audit company gets paid a pretty penny to track employees’ compliance, look over all the documents and at the end of the day; they are the only ones that are truly benefiting from the audit.
For large companies with thousands of employees, there are thousands of documents that must be collected and reviewed. Even if you hire a vendor to do your audit, HR will spend a lot of time dealing with employee appeals, complaints and questions. There will also be a number of unique situations that will require the vice president of HR to review, e.g., children born in other countries, common law marriages, natural disasters that have caused the loss of records, and more.
3. Employee backlash
One of the biggest issues with the dependent audit is the way employees react. Many employees are, needless to say, offended. They are being asked for documentation to prove that they were married to their wife or that a child is truly theirs. Many employees are also sensitive about releasing these private documents to a third party in this age of identity theft. In addition to the emotional aspect involved, putting together the required information and documents is a major inconvenience to employees and may have a cost to the employee when they request a new copy of their documents.
So how do you fix the problem?
The underlying issue that some ineligible dependents are on the plan will always exist, and a dependent audit is not going to fix this. Employees will continue to misunderstand who is a “dependent,” such as a grandchild living with the employee (unless the employee has legal custody).
In my 25 years of HR experience, 95% of employees are very honest people and the other 5% will find ways to beat the system. To help lessen the chance that your health plan has ineligible dependents and to not create a backlash from employees; I propose a gradual fix.
The first step is to require all new employees to present documents to HR during the new hire process; much in the same way that they must document their eligibility for the I-9 form. Secondly, tell employees that after a specific date if they have a life event, documentation will need to be presented to HR to add a dependent. Third, be sure to code the benefits/payroll system to automatically drop dependent children from the plan once they reach 26 years of age.
Using these steps, if just 10% of your employees turn over each year, in a few years you will have documented the eligibility of most of the dependents on the plan – and saved your company a lot of money, time, and undue stress.