Although employers have no obligation to subsidize dependent coverage, many do. By dropping coverage for ineligible dependents, your firm saves that premium contribution. Even if you don’t subsidize dependent coverage, having ineligible dependents on your benefit rolls will likely increase your utilization (and costs), since those people most likely to use health insurance are the most likely to buy it.
IOMA, theInstituteofManagementand Administration, reported that an audit of a large plan can generally expect to find 10 - 15 percent of covered dependents are ineligible; smaller plans might uncover an ineligible rate of 5 percent. Here are the steps to conducting your firm’s eligibility audit.
Employees - Review the eligibility criteria outlined in your health plan documents. If your plan covers only full-time employees, make sure all enrollees meet the service requirement. Allowing some employees with reduced hours to retain coverage and not others is discriminatory and could lead to lawsuits.
COBRA beneficiaries - Make sure any COBRA beneficiaries meet eligibility criteria — beneficiaries can generally continue coverage under COBRA for up to 18 additional months after a “qualifying event” changes their employment or dependent status. If COBRA beneficiaries fail to pay premiums on time, you can remove them from your plan.
Dependents - Next, review your health plan’s criteria for dependent eligibility. Does the definition of “family member” meet current state and federal laws? Some areas to pay attention to include: Who qualifies as a spouse? Do you need to cover same-sex spouses or domestic partners? When does a person no longer qualify as a spouse — after legal separation or after divorce?
Amnesty period - Many employers conducting eligibility audits offer an amnesty period, typically 30 to 90 days, in which employees can drop ineligible dependents from their plan without penalty. If you offer an amnesty period, inform employees of the criteria for dependent coverage eligibility and who is enrolled as a dependent under their plan.
The audit - After the amnesty period, you may elect to audit all employees or conduct a random audit, depending on the number of enrollees. In an audit, your plan administrator or consultant would look for inconsistencies, such as benefit checks being sent to a spouse at a different address. Because the auditor will have to ask questions about dependents and other personal matters, you may wish to hire a consultant to eliminate any suggestion of discrimination.
Cleanup - When the audit turns up dependents whose status is questionable, you can require documentation to prove the dependent’s eligibility. These might include marriage certificates, joint federal tax returns, municipal or state registration of domestic partnership or civil union, partnership affidavit, birth certificate, adoption certificate, guardianship documents or a divorce decree showing custody.
Maintenance - To keep your benefit rolls clean, require employees to provide proof of eligibility upon enrollment. Then schedule regular audits. The premium savings could more than cover the cost of an audit.
New rules for young adults - The Affordable Care Act requires plans and issuers that offer dependent coverage to make coverage available until a child reaches age 26, regardless of whether the child is married, living with the parent, financially dependent on the parent or eligible to enroll in his/her own employer’s plan. (Until 2014, “grandfathered” group plans do not have to offer dependent coverage up to age 26 to young adults eligible for group coverage outside their parent’s plan.)
Cost-sharing - If dependent health costs are becoming too burdensome, have employees share a larger portion of the premium cost. Between 2011 and 2012, nearly half of companies surveyed by Towers Watson and the National Business Group on Health (NBGH) increased employee contributions in tiers with dependent coverage, and about a quarter surcharged employees for spousal coverage.
Plan design - Account-based arrangements, such as health savings accounts (HSAs) and health reimbursement arrangements (HRAs), and premium reimbursement plans (PRPs) can give employees more control over their benefit choices, while controlling employer costs. For more information on these options, please contact us.