So much talk is devoted to the ever-increasing cost of employee health care plans, and with good reason. But one element of providing such a plan to employees is often overlooked: Regular eligibility audits.

A recent survey conducted by the Brookfield-based International Foundation of Employee Benefit Plans found that only 26 percent of U.S. employers conducted benefit eligibility audits.

“Employers conduct an eligibility audit to ensure that every person covered by their health plan is an approved dependent,” says Julie Stich, senior information/research specialist with the International Foundation of Employee Benefit Plans. “When the audit is conducted, employers often discover many people — former spouses, adult children, non-immediate family members — who are covered under their health plan even though they don’t qualify as a dependent.”

Based on a combination of anecdotal information and formal surveys, Stich reports that such audits can be worthwhile.

“The number of ineligible individuals can range from about three percent to as much as 20 percent, depending on the survey,” she says. “Regardless, if you add up the cost of coverage per individual, it can result in a significant cost savings.”

If your company or organization has never conducted a formal audit, Stich recommends communicating it early to your employees as they will be required to provide documentation to prove eligibility. Marriage licenses, birth certificates and tax forms will be required.

“In the past, some employers may have hesitated to conduct an audit because of the possibility of their employees’ negative reactions,” says Stich. “Now, if employers are honest about their motivation — ‘we’re trying to take advantage of all possible cost savings before the company has to take more drastic efforts,’ for example — employees are more apt to understand.”

Introduce the audit early, and give employees a 30- to 60-day amnesty period to come forward, no questions asked, to remove any ineligible individuals. Rather than accuse an employee of purposely pursuing coverage for an ineligible person, simply work under the presumption that he or she may have not completely understood the eligibility and rules for coverage.

“Sometimes people really don’t understand it and can make an honest mistake,” notes Stich. “It’s also a great time to spell it all out again for employees.”

Companies who do find ineligible individuals in their benefit plan generally just remove them. But employers do have some rights in regards to cases of outright fraud.

“First of all, you could require the employee to pay back premiums that covered the ineligible individual,” she says. “But more critically, what happens if that individual had significant health care claims or a catastrophic health condition and had an impact on your stop-loss policy? Beyond that, sometimes the insurance carriers will seek reimbursement, too.”

Some employees may resist providing confidential information to an employer, such as copies of their
tax forms.

“You can have an independent third party do an audit, too,” she notes. “This way, all confidential and personal information is not actually reviewed by someone in your organization.”

Once your company has completed an audit, follow up by establishing procedures that help document coverage eligibility for the future.

For example, employers with college-age dependents can get into the routine of providing a copy of a tuition bill or class schedule at the start of each semester. Being enrolled in college does not automatically qualify coverage; a student could be attending part-time or taking a semester off.

“That actually happened to one employee,” notes Stich. “The first time the student’s mother realized that her child had become a part-time student was when she needed to provide documentation during a health care audit.”

We’re in an era where employees understand that their employer needs to take measures to stay viable, making this a prime time to consider an eligibility audit.

“Removing ineligible dependents from a plan can ultimately save the employer hundreds of thousands of dollars and, given the current economy, I expect the percentage of employers conducting eligibility audits to grow,” says Stich.

By Laurie Arendt

Laurie Arendt is editor of CRW. She can be reached at crweditor@crwmag.com