By Mark S Sommers, Managing Principal, INNOVA BENEFIT Services LLC
Many employers and their contributing employees struggle to afford the yearly (sometimes double-digit) increases in health care costs. Contributing to this issue is the unfortunate reality that all too few employers monitor for the accuracy of enrolled dependents. As a consequence, employer plans wind up with ineligible enrolled dependents (and their costs).
Studies suggest more than 8 percent of enrolled dependents would not meet traditional eligibility definitions. It is not unusual to find “family” covered dependents to include: grandchildren, ex-spouses, other extended family members, and occasionally, neighbor’s children.
Studies suggest more than 8 percent of enrolled dependents would not meet traditional eligibility definitions. It is not unusual to find “family” covered dependents to include: grandchildren, ex-spouses, other extended family members, and occasionally, neighbor’s children.
It all begins with typical enrollment. Eligible employees are offered coverage for dependents; those electing often contribute a higher per payroll cost share to cover spouses and children and other qualifying dependents. However, here is the problematic (typical) employer background:
- 1) The employer’s health care plans are without clear definitions of “Eligibility.” This may include the legal definitions in their plan document or policy and extends to the plan’s summary plan description (SPD) and then on to other enrollment communications materials;
- 2) In many cases, employers offer more than one health care plan choice to participants. Those differing health plan options may, illustratively, include: an insured HMO; a self-funded indemnity plan and perhaps an insured preferred provider program. Each of these health plans is likely governed by separate documents (self-funded plans) or plan policies (insured plans). Without careful coordination and employer control over dependent definition, it is probable each plan has its own definition. In addition, each definition must comport with any defining federal and state laws.
- 3) To make matters worse, employees are typically given no guidance as to what makes their desired covered dependent eligible. The language in the SPD or enrollment materials may be silent or overly general and, as expressed above, there are probable inconsistencies between and among the employers own plan offerings!
It is against this backdrop that an employer may learn the importance of monitoring or even auditing their plans for proper enrollment of dependents. As illustrated above, each plan’s documentation and communication issues will need to be addressed as the first order of business.
The employer will have no legal standing to challenge purported ineligible dependents if their foundational documents and communications are not compliant, consistent and reasonably communicated. This critical effort is of paramount importance and is the baseline against which employees can have clarity as to the rules. Any auditing against less certainty would be an exercise in futility and result in employer and employee dissatisfaction, or worse.
Take the time to review your plan offerings. That includes related health plans such as dental and vision and others that permit coverage for dependents. If necessary, seek consulting or legal assistance in seeing that your eligible dependent definitions:
- 1) meet your human resources policies and intentions;
- 2) meet the requirements of applicable federal and state laws and
- 3) are entirely consistent among your offered programs.
That may not be easy. Negotiation with carriers as to their “standard” definitions and practices may be required, especially for fully-insured plans. In some cases, you may need to draft your self-funded plan eligibility definition with a fully insured (carrier-demanded) definition in mind. This is requisite in order to get absolute consistency among all of your offerings.
While you may be amending your plans, consider adding language that:
- gives you a right and sets an expectation that you may conduct audits and/or request legal documentation from employees substantiating that their covered dependents meet the established definition;
- notifies employees that any discovery of enrolled but ineligible dependents on the employer’s plans may result in disciplinary action, up to and including termination of employment.
Once you have solidified your definitions, you will wish to give your employees a solid communications effort on the “rules.”
Our next recommendation is to give your employees a resource to contact to review any difficult fact patterns with their circumstances. Even well intentioned employees may have difficulty evaluating whether foster children, ex-spouse, step-children, dependent grandchildren and domestic partner children are eligible.
You can address these issues in a solid question-and-answer format. You may wish to give employees access to an in-house benefits staffer who maintains expertise on these rules. In other cases, a broker or consultant can assist with interpretation or recommendations to the employer.
Imagine the unfairness of questioning or forcibly removing a covered dependent, absent clear rules, communications and available guidance.
It is our recommendation that with any auditing come some reasonable time after instituting the above framework. Then, in proceeding with an audit, we suggest that any first formal audit come with an amnesty provision. Let employees review their dependents against your established definitions. Give them first a chance to remove dependents themselves—without discipline or reprimand. (Establish clear rules and procedures as to how the amnesty and other audit provisions operate.)
Desired subsequent audits can be more strident. It would not be unusual to then conduct an audit that requires the employee to document eligibility (submitting supporting documentation). Failure to provide the requested documentation would eventually lead to the removal of the dependent and possible consequences to the employee.
Some employers reserve sanctions to those situations where the employee has been fraudulent with the dependent issue. Most removals are prospective as a retroactive removal is highly problematic. Employees who inadvertently cover ineligible dependents and where the facts are challenging or borderline would typically result only in the prospective removal of the dependent.
Some employers reserve sanctions to those situations where the employee has been fraudulent with the dependent issue. Most removals are prospective as a retroactive removal is highly problematic. Employees who inadvertently cover ineligible dependents and where the facts are challenging or borderline would typically result only in the prospective removal of the dependent.
Dealing with all issues surrounding eligible dependents in benefit programs is a critical effort in effectively managing your benefits. This is obviously particularly true in containing inappropriate costs.
Taking foundational steps to review employer and plan considerations is crucial. Auditing attempts without such a foundation would be an exercise in wasted efforts and probable employer embarrassment. Start with the homework!
About the Author:
About the Author:
Mark S Sommers, Esq., is managing principal of INNOVA BENEFIT Services LLC. INNOVA specializes in benefits administration, particularly in pre-tax programs. INNOVA also assists with employer administration of federal and state COBRA requirements. In addition, they provide consulting and operation of employer dependent eligibility audits. INNOVA has offices in Pittsburgh Pa., as well as San Jose, Calif. They can be contacted at information@innovaben.com.
Copyright 2011 by INNOVA BENEFIT Services, LLC. Reproduction permitted with proper citation.
