Employee benefits are one of the most significant investments organizations can make. But with rising costs, employers need to do what they can to manage benefits expenses. An often-overlooked area of employee benefits management is to verify the eligibility of dependents, which can cause a silent drain on an organization's bottom line. Covering ineligible dependents isn't just a compliance issue — it could cost organizations thousands.
Without realizing it, organizations spend more premium dollars than necessary when they cover individuals who, under the Summary Plan Description (SPD), are not supposed to be enrolled. Covering ineligible dependents is an unnecessary financial strain on an organization that can be nipped in the bud by conducting dependent verification audits.
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What is a dependent verification audit?
A dependent verification audit is a systematic review of dependents enrolled in an organization's health plan to confirm their eligibility. The process works by reviewing employee-provided documentation to verify relationships with enrolled dependents. Documentation typically includes birth certificates or marriage licenses. The goal is to identify and remove ineligible dependents from coverage to ensure only those who qualify receive coverage.
There are two types of dependent verification audits — an initial audit and on-going audits. Here's how they work:
Initial audits: Initial audits are a point-in-time audit of an organization's entire enrolled population with the goal of identifying and removing ineligible dependents from coverage.
Ongoing audits: Ongoing audits review newly added dependents to prevent ineligible dependents from enrolling into coverage.
Why employers should conduct audits
Here's more on why employers should conduct dependent verification audits:
Reduce health care costs
As health care costs continue to rise, covering ineligible dependents leaves employers exposed. Removing and preventing ineligible dependents from receiving coverage may result in significant cost savings for employers.
When employers conduct both types of audits, they can realize not only immediate cost-saving opportunities, but they'll also support long-term cost management as well. Ongoing dependent verification audits continuously protect an organization from unnecessary costs.
Ensure compliance and minimize risk
Organizations leave themselves exposed to liability when ineligible dependents are enrolled into coverage. Conducting dependent verification audits keeps employers in compliance with regulatory requirements such as the Employee Retirement Income Security Act and the Sarbanes-Oxley Act.
Promote fairness and equity
As plan sponsors, employers have a fiduciary responsibility to their employees (the plan participants) to ensure only eligible dependents as defined by their SPD are covered. Conducting audits promotes fairness among employees by ensuring that everyone follows the rules to ensure no employee bears the financial burden caused by those who intentionally or not, enroll ineligible dependents into coverage.
Conclusion
Employers need to take a proactive approach to safeguarding their resources. Conducting dependent verification audits is an effective method to manage health care costs, both immediate and in the long term.
Beyond cost savings, dependent verification audits contribute to a more transparent and equitable benefits program. Audits demonstrate a commitment to fairness and equity among employees by ensuring that all participants adhere to the same eligibility standards. By incorporating dependent verification audits into their ongoing benefits strategy, employers can protect their bottom line and fulfill their fiduciary responsibility as plan sponsors.
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