By Bill Fryman
It’s expensive to offer an employee benefits program, and covering dependents is a large part of that expense. The average cost of covering just one dependent is between $3,000 and $4000 per year. So when individuals who are not eligible for dependent benefits are added to the mix, companies can quickly see their benefits’ costs skyrocket.
Rather than implementing cost-cutting measures like reducing benefits or increasing co-pays, dependent verification audits can identify individuals who are not eligible to participate in a company’s benefit plan. On average, companies typically find that 6% of dependents covered on their plans are in fact not eligible. This puts companies at litigation risk related to ERISA and other regulations and can cost hundreds of thousands or even millions of dollars each year in unnecessary benefits cost.
Losses of this magnitude can affect a company’s bottom line and its ability to fund other important employee benefits and keep premiums reasonably priced. However, conducting a verification audit can be daunting for HR teams, so we’ve put together a few tips to help streamline the process:
Get your ducks in a row – The first step in conducting a dependent verification audit is mapping out your eligibility requirements. Create clear rules for who is covered under your plans who is not. You will want to coordinate with your insurance carriers to be certain that you are following their specific requirements regarding documentation and enrollment.
Educate employees – Once your eligibility rules are established, communicate them to employees. Most employees who add an ineligible dependent do so unwittingly. Common mistakes for ineligible dependents include ex-spouses, nieces or nephews living with an employee, or children who have aged out of coverage. So once the definition of an eligible dependent is determined, it’s crucial that all employees understand what that means. An enrollment guide, with your dependent definition listed prominently, is great way to do this.
Communicate – Throughout the audit process, communicate clearly and often using multiple communication channels with employees about what is going to happen and deadlines for required documentation. Be sure to get buy-in from unions and other stakeholders prior to starting an audit.
Make it routine – No one likes surprises, so once you have established your company’s eligibility guidelines and performed your first verification process, conduct verification audits on a regular basis. Depending on the rate of turnover, companies should conduct audits every three to five years. Companies with higher employee turnover should generally conduct audits more frequently.
Automate the process – There is great technology out there that will allow you to automate many of the more tedious audit processes. Web-based tools can house details for each employee and their dependents and record every activity that is taken regarding employee benefits. Rules can be applied that require employees to upload necessary documentation for approval, which eliminates the need for paper files and keeps all the information in one place.
Consider getting outside help – The dependent eligibility process can be arduous and time consuming, so you might want to consider using an outside firm to help you with it. Many companies find that using a third party can make the process much less stressful, especially in cases where employees need to be informed that ineligible dependents are being removed from coverage.