DO YOU HAVE UNINVITED GUESTS ON YOUR HEALTH PLAN?

Why Conduct A Dependent Eligibility Audit?

The results of a comprehensive dependent eligibility audit indicate a compelling opportunity to enhance the internal controls utilized in benefits enrollment. Employer-sponsored health plans have emphasized convenience and expediency, relying solely on an attestation from the employees to evidence dependent relationships. Traditional enrollment processes no longer meet the basic needs of the fiduciaries administering health plans.

For benefits administrators, the message is clear: You should closely evaluate the cost-benefit relationship of your current enrollment processes. An audit is an effective cost- measurement technique. The cost side of the equation varies by employer but represents a risk to the preservation of plan assets and may needlessly reduce the plan sponsor's operating results. Many employers should also consider fiduciary liability and the tax implications of pre-tax premiums attributable to ineligible dependents:

• ERISA/Exclusive Benefit Rule: health plan dollars must be used for eligible expenses. The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and eligible beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses for those eligible individuals. There can be personal liability issues for a benefit’s supervisor who knowingly pays claims for ineligible dependents.
  
  
• Section 125 Pre-Tax Contributions: The IRS allows pre-tax treatment for employee contributions for qualified cafeteria plans and beneficiaries, only. Allowing pre-tax deductions for unqualified dependents/beneficiaries could set-up a liability.
  
  
• Sarbanes-Oxley Compliance (Public Companies): A company’s management must assess and report the effectiveness of its internal controls over financial reporting. An external auditor must also attest to the accuracy of the company’s assertions and shortcomings must be reported. When ineligible dependents are covered on the corporate health plan and claims are paid under a benefit plan, a shortcoming exists. Management must report it and the financial burden caused by the ineligible dependents.

Benefits professionals are struggling to contain costs in today's labor market, and fiduciaries face a new kind of challenge. It's also important to note that employee feedback is encouraging. Most realize a greater appreciation of their health benefits as a result of the audit process. Not unlike popular consumer-directed initiatives, an audit is a means by which employees come to understand a fiscally sound health plan in today's labor market. As our clients' most valuable assets, their employees need a supportive and informative process. A well-designed eligibility audit is a very effective technique to achieve these objectives.

Plan-Smart and Plan-Guard Differences