01 Dec Employers Seek New Path to Savings with Dependant Eligibility Audits

More employers are scrutinizing employees’ health-insurance dependents in order to weed out ineligible beneficiaries.

Employers are looking to cut costs amid a sputtering economy and worries that health-care reform will accelerate rising corporate health-care expenses.

So some companies are conducting audits to verify dependents’ eligibility, to make sure they aren’t paying for people they shouldn’t be.

Benefits-consulting companies say interest in dependent audits has been growing for the past few years, but has ticked up more recently. ConSova Corp., whose business is mostly dependent audits, says sales have increased 150% this year over last year, and that it has already booked four times as many dependent audits for 2011 than it did in 2010.

Budco’s Budco Health Service Solutions, another firm that conducts dependent audits, says it expects to perform 25% to 30% more such audits in the first quarter of 2011 over the year-earlier period.

These companies aim to verify the relationships of dependents such as spouses and children, soliciting documents including marriage and birth certificates. In many cases, employers haven’t previously asked employees to verify dependents’ eligibility.

“Historically it’s been the honor system,” says Michael Smith, chief executive of ConSova, of Lakewood, Colo. “If you say that’s your spouse, they believe you,” he says.

Employers next year will pay an estimated $7,612 in health-care premiums on average per employee, a 7.8% increase over this year, according to Aon Hewitt. Employers paid an average of $2,100 annually per dependent in 2009, the most recent year available, according to human-resources consulting firm Mercer.

In most cases where an audit finds ineligible dependents, employees appear to have made honest mistakes. Some have enrolled non-immediate family members without realizing coverage shouldn’t extend to them, or they forgot to remove children who graduate from college or got too old.

Other times, employees are cheating. Budco says one third of the ineligible dependents it finds are the result of fraud, mostly in divorces when spouses try to keep their exes on their plans, says Dave Chojnacki, executive vice president of Budco Health Service Solutions.

In many minor cases, companies remove the dependent without penalty. For more serious offenses, employers sometimes ask workers for repayment or fire them, says Mr. Chojnacki.

It can violate federal law if an employee knowingly provides false information in writing to an employee benefits plan. But employees rarely get sued for this, partly because the amounts at stake are generally small, says Tom Christina, an attorney at Ogletree, Deakins, Nash, Smoak & Stewart.

Government contractor Science Applications International Corp. began an audit this month. It had done spot audits before, but never a full-scale one. Now, the McClean, Va., based company is asking 30,000 of its employees to verify dependents.

“We wanted to make sure we weren’t spending more than we should have and wanted to position ourselves well for upcoming changes in health-care legislation,” says Brian Keenan, executive vice president of human resources at SAIC.

The company has seen health-care costs rise over the last several years. Mr. Keenan expects the audit to save the company between $3 million and $4 million next year. He expects the impact of health-care reform to cost the company between $2 million and $3 million in 2011.

He says the company will deal with offenders on a case by case basis. At the very least, it will drop ineligible dependents. If it finds fraud, it will take more serious action, he says.

Defense contractor DynCorp International LLC is completing its first dependent audit of its 8,000 U.S. employees and expects to save more than $800,000 next year, says Don Platt, director of corporate benefits. So far, the audit has discovered 160 deceased dependents and more than 90 ineligible children, says Mr. Platt.

DynCorp considered making employees repay the company, but decided not to because it was complicated to determine how much each employee would owe, says Mr. Platt.

New employees now have to verify dependents with documents, says Mr. Platt. They also have to sign a form saying that the information they are providing is accurate and if found to be untrue they will be terminated.

National Semiconductor Corp. is currently doing a health-care dependent audit through XeroxCorp.’s ACS. The Santa Clara, Calif., based analog-chip maker is asking 1,400 employees with dependents to attest that their dependent information complies with National’s rules. The audit will be completed at the end of November.Typically companies find that between 3% and 8% of employees are ineligible. National expects to be in the lower range of that percentage, says a spokeswoman. “In light of U.S. health-care reform, the audit provides an opportunity for us to evaluate everything and clean-up our data,” the spokeswoman says.