Employers, Here is Why Your Benefits Plan Needs a Dependent Eligibility Audit

When asked, employees consistently point to benefits as a top consideration in accepting a job opportunity. While employees appreciate the value that health insurance coverage brings, they don’t always understand the cost. Employers who offer benefits plans, however, are consistently searching for ways to reduce the costs they incur for providing benefits. One of the best ways to reduce cost is to conduct a dependent eligibility audit.

What is a dependent eligibility audit?

A dependent eligibility audit allows employers to validate that dependents covered under their health and welfare plans are eligible. This is done by requesting that employees provide additional information or documentation for their enrolled dependents. It is a way for an employer to be sure that the dependents covered by company-sponsored health insurance are eligible to be enrolled based on the rules specified by the carrier and the company, as well as federal and state regulations. Audits can be one-time, periodic (e.g. bi-annually) or ongoing. Some companies perform the audits in-house, while other contract with a consulting firm to conduct the audit.

How does a dependent eligibility audit work?

Generally, a dependent eligibility audit starts with a sampling of employees chosen at random. The company or consulting firm that is conducting the audit sends a letter to the employee explaining the audit and asking them to supply proof of dependent eligibility. Some samples of proof of dependent eligibility include: 

• a birth certificate
• a marriage license
• a court document
• domestic partner registration form

Once the documentation is received and verified, the plan sponsor can be confident that the dependent being covered is eligible to remain on the plan.

What are the consequences for the employee?

Before an employer decides to run a dependent eligibility audit, there must be some discussion about what they will do if (1) an employee does not provide the documentation requested or (2) the documentation provided does not substantiate the dependent’s eligibility. 

Generally, employers don’t want to turn their audit into a witch hunt so there are usually not consequences tied to employment (i.e. disciplinary action or loss of job). However, the ineligible dependent will typically be removed from the plan immediately or by the first day of the following month after the substantiation proves to be inadequate. 

Return on investment

The return on investment for a dependent audit can be quite high. Mercer estimates most companies will find 3-10% of plan members to be ineligible.  Given that the average cost of a dependent policy can run $4,570 annually, the savings can add up quickly. 

Benefits as a recruiting tool

In a competitive job market, benefits are often seen as a recruiting strategy.  Effectively managing enrollment with an audit can allow an employer to provide a richer benefits package by eliminating unnecessary waste within the plan.  In addition, a dependent eligibility audit can correct honest mistakes such as mistyped information, incorrect documentation or forgetting to remove a former spouse.  An audit can reduce legal risks and decrease the need for a potentially uncomfortable conversation with an unwitting employee when a claim gets denied by an insurance carrier due to ineligibility. 

TriNet benefits experts are here to help you understand the value of a dependent care audit and other money-saving opportunities for your HR needs.