Vetting dependent eligibility, if done properly, can reap significant corporate savings.
By Terrence McCrossan
Rising healthcare costs have forced many organizations to rethink the insurance coverage options they are offering to their employees. These are often grueling decisions, with leaders looking to strike an appropriate balance between their financials and their desire to support and retain their valued workforce. Through a dependent audit, organizations are finding they can often do both.
ADP’s experience shows that an audit of a typical large business (more than 1,000 employees) will reveal that roughly six percent of claimed dependents are actually ineligible for health coverage based on its stated policies. This overage can be extremely costly to the bottom line, as the average cost of covering ineligible dependents in these organizations is approximately $800,000 each year. For some, this can mean the difference in holding costs down for both the organizations and the employees.
Reasons for Ineligibility
A variety of circumstances can result in dependents being found ineligible. From the employee’s side, these can often be honest mistakes, such as forgetting to change coverage for a child who has graduated college. Other times, it can be the result of misunderstanding company policies related to such things as domestic partner benefits. And, yes, some employees know that they have made an inaccurate dependent claim.
Regardless, auditing this dependent data is typically an intensive manual effort, taking 30 to 90 days and, in some cases, up to a year. The process requires significant coordination between the employee and organization, and involves requesting proof of dependent status and a thorough review of this information on the part of the company. This can be a daunting effort for HR departments already burdened by other administrative tasks—but help is available. Working with an organization like ADP to manage the dependent audit process relieves employers of the associated administrative burden, while capturing significant first-year ROI. Further, by working with an experienced third-party provider, employees are often more comfortable disclosing personal situations, and internal HR staff can remain neutral parties in the audit process.
Fazoli’s Sees Immediate Results
One recent ADP client that has gone through this process is Fazoli’s, an Italian fast, casual restaurant chain. Like many businesses looking to control costs in today’s economic environment, Fazoli’s, with approximately 3,200 employees, decided to conduct a dependent audit using ADP. Although Fazoli’s was skeptical of the audit at the onset, their attitude quickly changed as they immediately began to see significant results—and cost savings.
In total, the audit took 12 months to complete, including preparation and closeout activities. The financial savings results were almost immediate and extremely impactful. From a base of 378 employee dependents, the audit revealed 22 dependents who were ineligible for coverage. By addressing these situations, Fazoli’s return on investment for this audit was 16 times the cost of the service. That number will compound over time as Fazoli’s continues to benefit from the reduced number of dependents covered under the organization’s benefits plan.
“Conducting this dependent audit helped to ensure that we continue to be good stewards with our resources,” said Fazoli’s CFO Rodney Lee. “Having a reliable partner like ADP gave us the opportunity to focus our energy and resources on providing the best benefits possible to our employees.”
The dependent audit achieved favorable economic results for the restaurant, but, also importantly, employees were satisfied with the way the audit was conducted. The restaurant used ADP to reach out to each employee personally when auditing and confirming their eligible dependents. These personal, one-on-one efforts minimized the intrusiveness and impact on the employees. In fact, employees actually appreciated the transparency and efforts by their employer.
More and more organizations are performing dependent audits annually to ensure that coverage costs remain under control. By working closely with a service provider, employers can define a specific program and schedule that leverages different audit types to maximize the benefit to the organization.
An important first step in the process is for organizations to determine the strictness of their enrollment policy. In other words, how do they want to follow up on potential ineligibles, and do they wish to allow any exceptions to the process? It is also important that organizations have dependent eligibility requirements that are clearly defined and comprehensible for the employee, as well as ensuring that those requirements are regularly communicated.
The audits are then either one-time or continuous screenings, including full dependent audits and ongoing audits, giving employers the ability to review and authorize their employees’ dependent eligibility.
Full dependent audits are assessments that allow organizations to address ineligible dependents whom they might have on file. In order to prove eligibility, employees are required to provide legal documentation of dependents carried on their sponsored benefit plans. After completing a successful audit, organizations will often see a significant decrease in monthly carrier payments and claims payments.
Ongoing audits enable organizations to constantly monitor dependent eligibility without having to continually maintain paperwork, which provides less burdensome administrative work on the part of the HR team.
In addition to the general full dependent audits and ongoing audits, a number of specific audit types can be conducted, including:
· Full-Time Student Audits: all dependents currently flagged as full-time students.
· Overage Dependents Audits: all dependents who are over the maximum age for dependent coverage.
· Family Status Change (FSC) Audit: all FSCs to add or drop dependents from coverage as requested.
· Special Events Audits: a special group or population (e.g., after an acquisition).
· Dependent Add Audits: new hires or newly added dependents at open enrollment.
The first step in a formal dependent audit typically begins with the service provider partner sending letters on behalf of the employer to all company employees who have enrolled their dependents for benefit coverage. The provider requests official documentation (such as marriage licenses, birth certificates, and adoption certificates) to validate the eligibility of each employee’s dependent, with a specified period of time allotted for receipt of all supporting documentation. While the employer ultimately determines the timing, a typical time period is 30 to 90 days.
Dependent audit service providers customarily follow up with employees to determine next steps if they are determined to be ineligible for coverage or have not responded to the request for information. In addition, the provider will begin producing a standard report for the company’s benefits team to review and make determinations on whether or not to affect coverage. This report is usually provided to the employer on a weekly basis, clearly identifying the status of the audit.
Despite the clear financial benefits of conducting dependent audits, organizations often have several concerns before moving forward. One important concern is the potential administrative impact that the audit might have on the HR team. This is particularly true of organizations that are operating with lean HR departments that would have to sacrifice other tasks—such as performance reviews, hiring, and compliance—to focus on an audit. Especially in these cases, allowing the audit to be managed by an experienced service provider will allow internal HR staff to stay focused and “out of the paperwork.”
A second concern—and this is often a large one—is whether employees will view the audit process as a punitive effort, thereby having a potentially negative impact on morale. The best way to address this is with an open communication effort at the start of the process. It is important for employees to understand that the audit is part of an effort to keep costs down for the organization and also for them as employees. Reassurance that the audit process will be conducted discreetly and with personal sensitivity is also a key in the employee communication.
Dependent audit services conducted by a third-party provider help to manage these concerns and ensure that employees, HR, and the organization all benefit.
Rising costs in healthcare overall have increasingly forced employers to take a harder look at the coverage they offer to their employees. Conducting regular dependent audits is one important lever that is being used to manage these costs and minimize the amount that must be passed on to employees.
With a variety of audit services available, specialty providers like ADP are available to help employers develop the most effective and manageable audit program for their organization. Then by managing the process, treating employees with respect, and potentially returning hundreds of thousands to the bottom line, it becomes an offer that many business leaders are finding hard to turn down.
Terrence McCrossan is ADP division vice president of marketing and strategy.
Vetting dependent eligibility, if done properly, can reap significant corporate savings.