Health Plan Eligibility Audits May Save Money – and Your Company from Disaster
Over the past several years, Eyes on Benefits has outlined several tactics to help employers reduce their healthcare costs. One tactic that is often overlooked, however, is the reduction of ineligible dependents from the employer’s benefit plan. An easy way to approach this issue is to conduct a health plan eligibility audit, which not only can save your company money, but also save you from potential disasters.
Group health plans have very specific eligibility requirements for coverage. Typically, in order to be covered under a group health plan, you must be:
- A full-time employee working 30 or more hours per week,
- The legally married spouse of a full-time employee, or
- The dependent child of a full-time employee under age 19, or under age 26 if a full-time student at an accredited college or university.
Of course, one could add additional eligibility parameters to their medical contract such as pre and/or post-65 retirees or same and/or opposite sex partners. A company might even add 1099-misc contract workers or part-time employee eligibility to its plan if providing coverage to these groups was strategic. Regardless, if a person is covered under your plan who does not meet the eligibility guidelines, it will cost your company money.
Even with what many employers would consider to be “crystal clear” eligibility guidelines, many employees still enroll ineligible family members costing their employer thousands or even millions of dollars each year. Quite often, it’s an honest mistake by an employee that just doesn’t know any better. For example, the employee hears the term “dependent” during an open enrollment meeting and decides to sign-up his or her younger brother who happens to be living with the employee at the time. Possibly, the employee is taking care of his younger brother and considers him to be a “dependent.” Obviously, the younger brother is not eligible for coverage and an honest mistake was made.
Another common example relates to college-age dependent children. Quite often employees “leave” graduating children on the plan until they find other coverage via employment. Often, the employee thinks “no one is watching, and it will only be a few months before they get a job – so what’s the big deal?” The big deal is that child is not eligible for coverage and should be removed from the plan or placed on COBRA. If this does not happen, the situation is costing the employer money and the employee is under a false sense of security with respect to insurance for their child.
Without a system to monitor eligibility, an employer may find themselves paying premiums and/or claims for dependents that should not be on their plan. While your TPA or insurance carrier may assist you in this process, experts still believe that eligibility audits may save as much as 10% of dependent costs.
And what of the potential disasters alluded to at the beginning of this article? Anytime you have a person enrolled in a health plan that is not eligible for coverage, the insurance carrier is not required to pay claims for that person. In the event of a million dollar claim for a dependent 24 years of age, the carrier would verify that the dependent was enrolled on a full-time basis at an accredited college or university before that million dollar claim check is cut. If the carrier learns that 24-year-old dependent graduated last year, the carrier will simply refund the premiums paid and cancel coverage retroactively. Thus, there is no coverage for the million dollar expense – and that would be a disaster!
If you are interested in initiating an eligibility audit of your own, there are several sources to help you get started. If you are a member of SHRM (Society for Human Resource Management), they have a helpful checklist available in their Compensation and Benefits Focus Area which can be accessed here. If you’re not a SHRM member, you can view this article from HR Management that offers advice on how to best approach the eligibility audit. If you have further issues or concerns, you can always contact our office at 919-403-1986.
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February 29, 2008
Hill, Chesson & Woody strives to keep our clients' group decision makers abreast of trends influencing the employee benefits market. Look for Eyes on Benefits to bring you news and information affecting you and your employees.
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Phone: 919.403.1986
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