Plan Management: Are All Your Enrolled Participants Eligible? Don’t Count on it!

Linh Crider, CPA, CFE

Studies have shown that 5% to 15% of dependents covered under health plans are not eligible per Plan requirements.  Therefore, Plan management should ensure that all participants enrolled are entitled to benefits.  Not only does this control costs, but it fulfills Plan sponsors’ fiduciary obligations as required under ERISA.  As auditors, we frequently observe situations in which dependent eligibility status is questionable.  Often, these dependents are unable to prove their relationship with the Plan members.

The most frequent issue we see involves dependents enrolled as children.  Since the Affordable Care Act was implemented in September 2010, most plans are required to cover children up to age 26.  This provision of the law has resulted in a dramatic increase in the number of enrolled children for all plans.   Although all plans require proof of relationship to support the enrollment of a new dependent, not all plans adhere to this requirement for adult children since there is an assumption that they were previously covered before the law changed.  Documentation of proof of relationship should not be overlooked.

We have also noted instances where daughters-in-law, stepchildren, or foster children were added to the plans as dependents without any proper supporting documentation.  In the case of daughters-in-law, they may appear legitimate since they usually have the same last name as the member.  In audits, we have determined that some enrolled stepchildren were not qualified as legal stepchildren because their father or mother was not married to the enrolled member.  Finally, we have noted in the case of foster children, the supporting documents did not qualify under the relationship requirement.

Although not as pervasive as child dependency issues, eligibility situations with enrolled spouses also create potential problems – following are a few examples.  Some plans do not provide coverage for spouses if they are eligible for health coverage at their own jobs.  In these instances, plans should have policies and procedures in place to obtain information regarding other insurance coverage before enrolling the spouse.  Another area of concern is enrollment of spouses that are deemed common-law spouses.  Most plans only allow common-law marriage if it is recognized by the state and the member provides supporting documents to confirm its legitimacy.  Since there is no marriage certificate, the documentation requirement must be defined and communicated to the plan participant (e.g., notarized legal documents).  This step is sometimes overlooked by the eligibility staff.  Lastly, there is the difficult issue of former spouses.  In general, no plans allow former spouses as dependents.  Sometimes, members and their ex-spouses make arrangements not to report the divorce to the Plan in order to keep the ex-spouse enrolled.  This will increase the plan’s costs.  Unfortunately, it is difficult to know the existence of the divorce without extensive research.  Sometimes this information can be obtained from member actions in other plans such as the pension plan via a Qualified Domestic Relations Order or a change in beneficiaries.

We have shown some ways that ineligible dependents can be enrolled in your health plan.  Plan management should implement control procedures to ensure that their policies regarding dependents are enforced.  This includes a thorough review of proof of relationship documentation with any new enrollment, including re-enrollments.  We also strongly recommend periodic formal dependent audits.  As many as 5% to 15% of the dependents in your plan could be ineligible; what are you going to do about it?

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