UBA Partner Mike Humphrey, Senior Benefits Advisor at The Wilson Agency, states that the main idea behind a dependent audit is that it will save employers money by finding and removing all the dependents that should no longer be on the plan divorced spouses or aged-out children.
These audits can be done using internal resources or, more often than not, contracted to an outside vendor who can manage all the paperwork. Some vendors claim they save employers a lot of money through dependent audits. But, here is a different experience and point of view that may save you the time, trouble, and expense of going through an audit.
A company may consider a dependent audit because many of the “dependents” on the health plan are not eligible and are costing the company money.
But ask yourself, “is the amount of money that these dependents ‘may’ be costing the company worth the expense of a dependent audit?” Maybe not for self-insured plans.
Most dependent “children” that are on the plan are not even using the plan. In the case of marriages, an employee who wishes to keep an ex-spouse on the plan can still send in the original marriage certificate and claim they are still married.
Dependent audits aren’t cheap. The audit company gets paid a pretty penny to track employees’ compliance, look over all the documents, and at the end of the day, they are the only ones that are truly benefiting from the audit.
For large companies with thousands of employees, thousands of documents must be collected and reviewed. Even if you hire a vendor to do your audit, HR will spend a lot of time dealing with employee appeals, complaints, and questions. There may also be several unique situations that will require the vice president of HR to review, e.g., children born in other countries, common-law marriages, natural disasters that have caused the loss of records, and more.
One of the most significant issues with the dependent audit is the way employees react. Many employees will get offended. They are being asked for documentation to prove that they were married to their wife or that a child is truly theirs. Many employees are also sensitive about releasing these private documents to a third party in this age of identity theft. In addition to the emotional aspect involved, putting together the required information and documents is a significant inconvenience to employees. It may have a cost to the employee when they request a new copy of their documents.
So how do you fix the problem?
The first step is to require all new employees to present documents to HR during the new hire process, much like they must document their eligibility for the I-9 form. Secondly, tell employees that after a specific date, if they have a life event, documentation will need to be presented to HR to add a dependent. Third, be sure to code the benefits/payroll system to automatically drop dependent children from the plan once they reach 26 years of age.
Using these steps, if just 10% of your employees turn over each year, in a few years, you will have documented the eligibility of most of the dependents on the plan – and saved your company a lot of money, time, and undue stress.
Cosmo Insurance Agency is a full-service independent insurance agency based in Hackensack (Bergen County) and Lakewood (Ocean County), New Jersey that offers an all-encompassing range of insurance options for both individuals and businesses. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating our knowledge of the insurance guidelines for healthcare, employee benefits, life insurance, self-insurance, dental, disability, and long term care insurance, we keep our clients up-to-date with affordable plans that cover all their specific insurance needs.