Overview: Dependent eligibility verification audits are conducted to ensure that only eligible dependents are enrolled in the health plan. Some reasons an employer might decide to conduct a dependent eligibility verification audit include: (i) to reduce costs by removing ineligible dependents from the plan; (ii) to comply with ERISA; and (iii) to ensure an appropriate system of checks and balances.
An employee's dependent may become ineligible for coverage under the health plan for a variety of reasons such as divorce or exceeding the age maximum for dependent eligibility. Employees do not always update their records when this happens, so it is common for an employer to have a certain amount of ineligible dependents on its health plan. Many employers conduct dependent audits every two to three years to ensure that only approved dependents are covered under the health plan.
In order to be successful, dependent eligibility verification audits should be well-planned and communicated. Common steps an employer might consider following are: (i) communicate the audit; (ii) provide an amnesty period for employees to remove ineligible dependents; (iii) verify dependent status; (iv) remove ineligible dependents; and (v) close out the audit.
Trends: The Affordable Care Act (ACA) impacted how employers can handle dependents enrolled in the plan. Employers can still protect themselves from having ineligible dependents on the plan, but should consider how the expansion of dependent coverage and the prohibition of rescission of coverage can affect the audit.
Tracy Morley, SPHR, Legal Editor
Updated to reflect information on the Patient Protection and Affordable Care Act's maximum annual limitation on cost sharing.
This How To details the steps a prudent employer should take when conducting a dependent eligibility verification audit (or dependent audit) in order to control rising health care costs.
Employment glossary definition of Dependent Care Benefits.
HR guidance on using dependent eligibility verification audits to ensure ineligible dependents are not on the health plan.