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Dependent audits: What are they, and what to do if you receive one

Rob Sabo | June 9, 2010

With health insurance care costs escalating--5 to 10 percent per year for the past 10 years--and dependent care scheduled to be extended for children through the age of 26 starting this fall, many employers have begun turning to companies such as Mercury Dependent Audit and Dependent Check to conduct dependent audits as a way to monitor health care recipients in their organizations.

What is a dependent audit?

A dependent audit is an examination of a company's insured employees' dependents, often conducted by an outside organization, which requires employees to prove dependents who are receiving health insurance benefits are eligible. They are conducted as a way to control medical costs, and employers are increasingly willing to risk ruffling a few feathers with employees as a means of curbing the rapidly rising costs for health care. Some companies have asked employees to submit documentation such as birth certificates, marriage licenses and tax returns to ensure dependent eligibility.

Dependent audits seem to be working: up to 15 percent of dependents are found to be ineligible through the audit process. The costs of those bogus dependents? An average of between $2,000 and $3,000 per person. A large company with 10,000 employees usually has between 200 and 500 ineligible dependents, finds employee benefits firm Towers Watson of New York.

In 2010 nearly 70 percent of large firms plan on conducting dependent audits.

Who is entitled to dependent care coverage?

Under provisions of the Affordable Care Act signed into law on March 23, 2010, young people up to age of 26 can stay on their parents health insurance coverage regardless of marital status. The reform goes into effect on September 23, 2010 for plan years that begin on or after that date. This expanded health care benefit applies to workplace health care insurance, retiree health plans, and self-employed individuals that qualify for a self-employed health insurance deduction on their tax returns.

What about your health insurance provider?

Although most of the nation's largest health insurance providers--Blue Cross/Blue Shield, Kaiser Permanente, WellPoint, Inc., and many others--have said they will maintain insurance coverage for young adults enrolled on their parents' plans, other insurance providers have stated that they will not provide coverage for these dependents until such time that they are legally bound to provide it. If this is the case with your company, purchasing short term health insurance coverage until your new plan year rolls around is a good way to ensure continuous health care coverage for your dependents.

What to do if you've received notice of a dependent audit

You typically have a month to 45 days to respond to a dependent audit--and most companies offer an amnesty period in which you can drop false dependents with no penalty. If you do not voluntarily drop ineligible dependents during this time, your company can hold you responsible for any payments given to those dependents. If you don't respond to the query for information by the deadline, they can drop even eligible dependents.

If you are covering someone who shouldn't be on your health insurance policy and you receive notice of a dependent audit, it's in your best interest to come clean and drop those dependents.

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