Dependent eligibility reviews are often thought of as a way to reduce employer cost for health care plans, but there are other reasons to engage in such a process. These reasons include, for example, the legal and financial issues employees may face from enrolling ineligible individuals on an employer group health care plan. You may be protecting your employees from future hazards by ensuring everyone is aware of the rules. Regardless of whether there was an intent to defraud or the employee just does not fully understand the eligibility rules, the time to correct the error is not when the dependent has a major health issue and claim.
Why are Dependent Eligibility Reviews Necessary?
Oftentimes employees misunderstand the rules of eligibility such as allowing a former spouse or former stepchildren to remain on coverage following a divorce. A court may order an employee to maintain coverage on a former spouse and/or stepchildren for a given period of time; however, this order only obligates the employee to “pay” for coverage and is not a court order for the employer to maintain coverage for former family members. With a few exceptions (such as for fully insured plans in Massachusetts), the options for the employee are:
- pay the full rate for COBRA
- move the former family member to a private plan on the open market
The Potential Threats of Ineligible Employees
The true danger for an employee who enrolls former family members may not only be committing insurance fraud, but they may also be in violation of the court order that demands they maintain the coverage. The employee may be saddled with paying all health care costs for a former family member if the insurance claim is refused. Often ineligibility may go unnoticed until there is a major claim which of course is then too late. The employer may also request a repayment of previously paid claims after the date of divorce which again could be substantial.
For larger claims where stop-loss may come into play, the claim may be denied as stop-loss carriers will often check eligibility before paying a claim. This, of course, means the employer’s plan has already paid a large sum toward an ineligible claim and again may be faced with asking for a refund from the employee or writing off the claim’s expenses to “lessons learned”.
How does an employer maintain a clean enrollment eligibility roster?
The most efficient way is to verify clean enrollment is to review all dependents. For example:
- Begin with a full audit of all dependents currently enrolled in the health care plans.
- Once that is complete, maintain vigilance by requiring verification documents for all dependents added at a later day.
- Additionally, a complete review of spouses (and stepchildren associated with those spouses) should occur every few years.
Keep in mind that divorce is often the main cause of ineligible dependents remaining on the health care plans and a legitimate spouse this year may be a former spouse next year. For employers who are utilizing spousal carve-outs or exclusions, checking every year to confirm continued eligibility and status in regard to the rules of the carve-out may also be warranted. This check can also be built into an ongoing eligibility review.
When should a dependent verification review be conducted?
The answer is: anytime other than during open enrollment. Complete lists of active dependents may change quite a bit during open enrollment so it’s best to complete the audit prior to the open enrollment window or after enrollment is complete.
If the review is completed before the enrollment period, a clean-up audit or ongoing audit would also be recommended post-enrollment to maintain a clean and accurate account of who should remain on coverage. Ongoing reviews may consist of weekly, monthly or quarterly reviews on any new dependent added to the roster via new hire or qualifying life event.
Adding an audit during open enrollment would be taxing on the already stressed HR team at this time of year and the completion dates may not track with open enrollment and could become confusing to the employees.
How much time should an employer allow for a dependent verification review?
The answer is: enough time to complete the process, but not so much so that the employee does not see an end date coming soon. A best practice we have found is to allow 6 weeks for the review with an unannounced 4-week grace period (aka “appeals phase”) to follow. Human nature for many employees is to wait until the last minute to submit what is needed and the grace period helps those employees who do not get it right the first time. The grace period is a second opportunity for an employee to keep their eligible dependents on the plan. No respectable review process wants to remove dependents just for the sake of removing as many as possible. Reviews should not come across as hoops to jump through – it should be easy to complete, given enough time to do so and offer assistance to employees who have questions or concerns. Accuracy of the final results is key to saving money, protecting your employees from possible legal and financial issues and maintaining employee morale.
Value Added from Dependent Eligibility Reviews
The end result of a dependent verification project can be positive for both the employer and the employees. Communicating to employees the importance of monitoring accurate enrollment on the health care plans is a great pre-review step. Making certain employees are aware such a review is beneficial to them and to help slow increasing health care costs will aid them in understanding the purpose of such a review. Allowing anyone to be on the plan may mean higher employee costs down the road. Having ineligible dependents on a plan may also land an employee in a great deal of trouble.