Dependent Verification Audits: Potential Savings for your Health Care Plan

Posted in: Employee Benefits

A dependent verification audit is an inspection of an employer’s health plan to ensure enrolled dependents’ eligibility. It applies to self-insured plans as well as fully insured plans. The goal is to help employers reduce health care costs and assist with compliance efforts ensuring that only eligible dependents are covered in the employer’s plan.

How is a dependent verification audit conducted?

As the employer, you will hire a third party company to perform the dependent verification audit. It’s customary for the employer to work with the auditor to determine a savings ratio that they must meet. For example, an audit company may guarantee that your plan covering more than 300 employees would have savings equal to, or greater than, 4 times the cost of the audit therefore setting a 4:1 ratio of audit costs to plan cost. The auditor must then meet these criteria or pay your company back the original cost of the audit.

Once the audit criteria have been agreed upon, the audit company will begin examining your healthcare plan. Here’s a quick summary of what that process looks like:

  • During Open Enrollment, employer makes employees aware that a dependent verification audit will be taking place shortly following Open enrollment.
  • Employer also communicates the penalty for not cooperating with the audit.  For example, failure to provide requested documentation will result in the loss of coverage for the employee’s dependent.
  • Audit company mails a packet to each employee with specific instructions and a deadline to return completed documentation.
  • Audit company tracks all responses and provides the collected data to the employer in a timely manner following a set deadline.
  • The employer is made aware of the number of employees who either have ineligible dependents or failed to respond.

Once the employer receives this information, you as the employer have several choices:

  • You can stick with the original deadline and follow through with the penalty.
  • You can give your employees more time to provide the necessary documentation to prove their dependent’s relationship and then, for those who fail to comply, follow through with the decided upon penalty; or
  • You can require employees with ineligible dependents who have had claims pay back those amounts.

We see many of our clients who have conducted dependent verification audits choose to extend the deadline for their employees and then discontinue the employee’s dependent’s health insurance if the deadline extension is still not met.

We have found that there are a variety of reasons that an employer is forced to disenroll a dependent, such as:

  • Voluntary disenrollment
  • The employee did not provide a response
  • No documentation or incomplete documentation for the dependent
  • Residency/relationship not established
  • Spouse joint ownership and relationship not established
  • Spouse relationship not established
  • Dependent deceased

What is the value and purpose of a dependent verification audit?

The results you receive from your dependent verification audit will help you find out if you’re overpaying on your healthcare plan by identifying ineligible dependents.

The results from the claims auditing service we have chosen to use have historically found that 12.8% of all dependents were ineligible for coverage, with rates ranging from as low as 3% to over 34%.

We recommend conducting a dependent verification audit once every three years to keep a pulse on your health insurance plan. If you have any questions about conducting a dependent verification audit at your organization, please contact me at epaulsen@psafinancial.com.

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