To help control the rising costs of health insurance, consider auditing your health plan to identify and remove ineligible dependents.
According to research by Mercer, a benefits consulting firm, employers commonly find that 3 to 10 percent of plan participants are ineligible dependents, and each dependent costs the plan an average of more than $4,500 per year in claims.
Identifying and removing ineligible dependents can result in significant savings. An audit may identify employees’ children who remained on the plan after age 26, or former spouses who were never removed from the plan. Some employees may even have misrepresented extended family members as dependents.
Randomly selecting a handful of employees for an internal audit can help you decide if a full audit is likely to result in savings. Not every company will benefit from an audit. If your workforce consists primarily of young, unmarried employees, you are less likely to identify a significant number of ineligible dependents, and the cost of conducting an audit could exceed the amount saved. If, however, you decide that a full audit is worthwhile, you’ll want to prepare with a few pre-audit steps.
First, check your plan documents for procedures on rescinding coverage. Dropping a dependent mid-year might not be allowed without evidence of fraud (although the dependent could still be removed at the next open enrollment). Although some employees may knowingly add ineligible family members, others likely made simple errors, so don’t start throwing around accusations of fraud.
Next, create a plan for dealing with employees whose family members will be dropped. You will likely have to deal with a few agitated employees who are unhappy that a family member will lose coverage.
Finally, if you don’t already do so, consider requiring employees to provide signed statements verifying dependent eligibility during the next open enrollment period.
This article was featured in the Benefits & Compensation Regulatory Alert newsletter.
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