Among the changes in the health reform law spurring the audits is the rule that children up to age 26 are now able to stay on their parents' plan, even if they are no longer students. Some states have also enhanced their coverage requirements for adult dependents.
“There's a heightened need now for auditing,” says Michelle Futhey, an executive vice president at global benefits consulting firm Aon Hewitt.
According to the firm's 2010 benefits survey of about 1,000 employers, 48% of respondents already conduct dependent eligibility audits. Another 26% said they are planning an audit for 2011 or beyond. Aon Hewitt has conducted more than 450 dependent eligibility audits for employers in the past four years, involving more than 2 million dependents.
Here's how it works: An employer informs workers that it will be checking to make sure everyone covered by the company's health plan is eligible for enrollment. This notification typically happens about 30 to 60 days before the audit. Employees with dependents and spouses on their health plan must submit documents verifying eligibility. These documents include birth certificates, domestic partnership status and proof that a marriage is still valid, such as joint debts. “You want to make certain that you are giving employees time to respond,” Futhey says.
Then, the auditor combs through the documents to make sure no one who is not supposed to be on the plan has coverage.
Prior to eligibility changes in the federal health reform law, Aon Hewitt found that, on average, 10.7% of all dependents participating in an employer's health plans were ineligible for coverage. Today, post-reform, Hewitt has found about a 2 percentage point rise in eligibility. Now, between 8% and 8.5% of dependents on employer health plans are found ineligible for coverage, according to 2011 trends.
However, though more family members are qualifying for employer-based coverage under health reform, the costs of the ineligibles are higher, according to Aon Hewitt.
“Ineligibles now tend to be older adults and former spouses,” Futhey says. “Before, many of the ineligibles were adult children who were no longer students.”
Older dependents tend to be sicker than dependents in their 20s, she says, driving up an employer's healthcare spending. As a result, the average savings per ineligible after an audit has actually risen.