Articles

Q&A: Random Sample Dependent Eligibility Audits (Part I)

Stefanie Zachery May 9, 2011

QUESTION: What is the best practice regarding how a random sample dependent eligibility audit would be conducted?

As an employer, it is important to ensure you are going through the process of identifying the right approach for your dependent eligibility audit. Roughly 2-3% of our clients choose a random sample audit over a 100% audit. Below are some items for consideration as you think about which approach is right for your organization.

Random Sample Dependent Audit Positives:

It has a lower initial cost which can streamline the procurement process in some cases.
A Random Sample Dependent Audit would impact fewer employees.
If the audit is performed internally, a random audit can lower the time commitment needed from HR staff.
It provides a reasonable assessment of whether ineligible dependents are an issue with the Plan. However, if dependents are not currently being verified with documentation the Plan most certainly suffers from ineligible dependents.

Random Sample Dependent Audit Negatives:

A 100% Dependent Audit results in dramatically higher cost savings. Since Dependent Eligibility Audits have a return on investment of between 500 and 2,500%, the less money that is placed into the project will result in far less savings.
A 100% Dependent Audit lessens the chance that employees feel singled out or targeted by the process. Even if the organization decides to perform a Random Sample Audit (see Sample Selection Method in Part II) of a percentage of its employees, some employees will talk to their coworkers about the process and find out the coworker was not selected.
Many organizations perform Dependent Audits for compliance reasons as well as the cost savings they provide. A Random Sample Audit does provide a reasonable assessment of the Plan, but it is important to consider what will be done when the random audit indicates ineligible dependents are an issue. Most employers who have started with a Random Audit have followed through with a full audit directly after.
Recent legislation regarding rescission in Healthcare Reform requires that if Plans identify that an ineligible dependent is using a significant amount of funds, employers have very little recourse to recover those funds. They are required to prove that “fraud or intentional misrepresentation” occurred, which is a very high legal standard.

A full 100% audit of dependents eliminates accusations of discrimination and unfair treatment. They achieve greater compliance and generate more cost savings with a higher ROI. Partial or Random audits can be used to “gauge” the problem (see Part II) but they don’t fix it.