The harmful costs of covering ineligible dependents
As health care premiums are rising for individuals and businesses around the country, it's important that owners cut down on costs wherever they can.
One of the easiest ways to do this is ensuring companies only cover eligible dependents. This process is known as dependent eligibility verification, and it can save employers thousands when it comes to business expenses and federal penalties.
Here are a few ways ineligible dependents cut into a company's budget, open them up to federal penalties and deprive employees of other important benefits due to the increased cost of health care:
Dependents cost a lot
The average cost to cover an employee's dependent is $3,500, according to a report published in Government Finance Review. Multiply that number by the amount of dependents enrolled on a company's health plan, and it's easy to see how the cost can get out of hand quickly. But often it's not the malicious intent of an employee that's raising company health care expenses; it's a lack of knowledge about eligibility requirements or forgetting to update dependents when something changes.
The study found 60 percent of dependents on employer health plans are children, but this doesn't mean they are automatically eligible. For example, employees might claim stepchildren or grandchildren. Although these dependents are often related to the employee, most of the time workers are not considered legal guardians for these kids for eligibility purposes. Another contributing factor to the amount of ineligible dependents is children who stay on their parents' insurance past the age of 26.
Audits don't need to be difficult
"Sixty percent of dependents on employer health plans are children."
In addition to children, spousal dependents have also been found to be ineligible for coverage in certain scenarios. For instance, employees might forget to remove their ex-spouse after a divorce or in the event of a family death. Spouses make up 40 percent of ineligible dependents, according to the study. Covering ineligible dependents also makes a business liable to fines from the federal government.
Violations of health care coverage fall under the Employee Retirement Income Security Act, and can cost employers thousands of dollars if they are not complying with reporting laws, according to the Society for Human Resource Management.
But there are simple things employers can do to help cut down on unnecessary coverage for dependents. Perhaps the easiest thing to do is collect documents from employees in the immediate aftermath of a major life event such as a marriage or birth. Having this paperwork on file makes it easier to determine whether a dependent is still qualified to receive benefits from a company during the review process.
Employers should conduct an in-depth health care cost analysis in addition to dependent eligibility verification on a regular basis to make sure health care costs remain as low as possible.
Employees miss other benefits
Companies are unable to offer other important benefits and perks to employees due to the excessive cost of covering ineligible dependents. Incentives such as gym memberships, programs to help employees quit smoking and similar benefits must be put on the back burner to accommodate the immense cost of covering these unqualified dependents.
These extra funds can also be put toward growing the business, enhancing the office space or addressing any other pressing concerns in the workplace. Employers should reach out to a consultant to examine if conducting a dependent eligibility audit is in the best interest of the company. If an employer is looking for a way to cut costs, it might be a beneficial move that could potentially save them thousands of dollars they can use elsewhere.