Dual Surge: Ineligible Dependents, and Dependent Eligibility Audits

by Clive Riddle, May 7, 2009

Managed Healthcare Executive Magazine, in its May Issue, quote us in an article by Tracey Walker: “Audit Reviews Keep Costs Down.”

The gist of the article is, that 5% or more of many employer’s covered members involve dependents that do not currently meet their employer’s eligibility criteria, and that eligibility audits are an effective way to reduce employer costs and exposure- directly if they are self-insured, and indirectly if they can improve their experience with their fully insured health plan.. It is noted that in the current economic climate, employer demand for such audits may be on the rise.

Our quote involved regulatory scrutiny of health plan disenrollment of such dependents:

“Employers and health plans do need to be cognizant of regulatory issues as they proceed with dependent eligibility audits. Employers would have ERISA regulatory protections from state regulators, according to Clive Riddle, president and founder of MCOL, a provider of business-to-business managed care resources. ‘But when self-funding is not involved, the health plans covering the dependents flagged in eligibility audits must be cautious in how they handle disenrollment and in particular, rescissions of any claims incurred,’ he says. States such as California have clamped down on rescission activities, and health plans have to follow very strict guidelines in numerous states when dealing with this issue.”

Mercer last month issued a release on this topic: “Mercer sees significant growth in health plan dependent eligibility audits.” Mercer pegs the percentage of ineligible dependents in a range of 3% to 8%, and the average cost of covering a dependent for plan sponsors at $1,900 per year. Thus Mercer calculates a plan sponsor with 10,000 dependents and 5% ineligible could save $950,000 annually through such an audit. It’s certainly easy to see why such audits are increasing in frequency. And of course, due to the impact of the recession with layoffs and unemployment, the number of potentially ineligible dependents continue to rise.

From a public policy standpoint, a surge in employers and health plans dropping coverage of greater numbers of dependents will of course only swell the ranks of the uninsured. One policy solution would be to mandate dependent eligibility be tied to IRS dependent status, at least up to a defined age, as opposed to the current patchwork of employer, plan and state specific criteria, which typically would disallow a 22 year old just graduated college student living at home with their parents while looking for a job.