Finding Bogus Beneficiaries

Published February 2009

Excerpts taken from:
Victoria E. Knight
Wall Street Journal
February 6, 2009

Seeking to rapidly cut costs as the economy sours, a growing number of U.S. employers are zeroing in on workers who are collecting health benefits for which they aren’t eligible.

In recent years, such “dependent eligibility audits” — where employees are required to provide documented proof, rather than just give their word, that spouses and children are eligible for corporate medical coverage — have become increasingly popular among employers seeking to rein in rising medical expenses.

In a survey by Watson Wyatt released last March, when the economy was in much better shape, almost three quarters of large employers said they planned to conduct health-plan audits this year, up 55% in 2008. Now, as the economic downturn deepens, some large employers are moving up their plans, while other employers, including medium-size companies that had hesitated on taking such action, are calling in benefits consultants or auditors.

Employees are more likely to be open to participating in health-plan audits if the savings generated stave off more dramatic cost-cutting measures, such as pay freezes or cuts, shorter work weeks and in the most extreme cases, layoffs, experts say.

Without a process in place to validate the eligibility of claimed dependents some auditors estimate 4% to 8% of the dependents enrolled in the average employers’ health plan don’t meet their eligibility requirements. Others cite percentages as low as 3% and as high as 27%. Examples of the types of ineligible dependents that may be identified in a Dependent Eligibility Audit include divorced spouses, children who have exited full-time education, boyfriends and girlfriends. Depending on your plan coverage and contribution percent, each ineligible dependent costs your organization between $2,500 and $5,600 annually.

BASIC entered the Dependent Eligibility Audit area through a request from one of our large clients. Through this employer partnership we developed a system to identify ineligible dependents based on their Health Plan Summary Plan Description. In this particular case our process started with a feed from their payroll system. As a way to better support our clients we tie in our Dependent Eligibility Audit with our COBRA system for those clients with both services.

We’ve found that most employers typically flag audits several months in advance and provide an amnesty period where workers can voluntarily remove dependents who don’t meet the plan’s eligibility requirements without penalties, so long as employees adhere to the rules going forward. Good communication is the key for success.

Workers should be prepared to dig out copies of birth and marriage certificates, root around for tax returns and obtain a letter from their child’s college. BASIC Dependent Verification provides employers with 100% validation of eligibility for all claimed dependents via acceptable documentation. Based on our audit, employers can generate immediate cost savings by eliminating ineligible dependents

If you would like more information about how BASIC can assist you in Dependent Verification Audits please call Cindy DeYoung at 800-444-1922 extension 220.