Cost-conscious companies are finding health plan audits a useful tool for weeding out ineligible dependents.

Most companies will cover a worker's spouse and children as dependents in a health plan, but not ex-spouses, adult children or other relatives. Children often become ineligible at a specified age or when they graduate from college. By finding and removing these ineligible dependents, health plan audits can reduce spending and help the company avoid future liability.

"I'm definitely seeing interest in audits and some companies are making significant moves to do that," says Tom Billet, senior consultant for Watson Wyatt, a Washington, D.C.-based consulting firm focused on human capital and financial management.

Ford Motor Company, for example, has removed about 50,000 ineligible dependents since it began auditing its health plan in 2000, according to spokeswoman Becky Bach. About 560 million Americans receive health benefits through Ford.

The Dearborn, Michigan-based car manufacturer has "seen a significant cost savings" and saved millions by avoiding future claims from ineligible dependents, Bach notes.

"We had great results, so now it's part of our system," she comments. "It's not just cost savings. Ford Motor Company doesn't want to provide benefits for ineligible dependents."

Similarly, General Motors has audited its health plan each year for about 20 years, and has netted "pretty significant cost savings each year," states spokesman Kerry Christopher.

About 1.1 million Americans receive health benefits through GM, so "a small change can really make a difference in terms of cost," Christopher says.

"It could be a considerable cost savings, if they have a lot of ineligible people on their plan," Billet agrees.

The Procter & Gamble Company, a Cincinnati-based manufacturer of health and beauty products, reduced its number of covered lives by 5% after it implemented health plan audits, according to Sandra Morris, senior manager of employee healthcare benefits.

Staight-forward process

Companies can start by announcing a grace period during which workers can update their information and make corrections without penalty. That move shakes some ineligibles out of the system.

Then companies can begin the audit and require workers to show documentation on dependents, such as marriage licenses, adoption papers, birth certificates and proof of college enrollment. "What that documentation is should be spelled out in the companies' policies, and it usually is," Billet notes.

Outsourcing health plan audits is common. "Most aren't going to do an audit themselves," Billet points out. "They're going to hire somebody to do it for them."

Some companies bill workers for health expenses that occurred after the date when a dependent became ineligible.

The need for a weed-out raises the question of why ineligible people are on the health plans in the first place. In many cases, it is the result of an innocent mistake in which a worker became divorced or saw a child graduate from college without updating the records in the human resources department.

"The majority of these situations are people who had life changes, and they forgot to call someone and tell them," Christopher says.

An error can occur if a worker does not know that a life change will impact their dependent's eligibility. "Sometimes employees don't fully understand what the requirements are," Billet notes.

An amnesty period gives workers time to review the requirements, ask questions and correct any mistakes.

Bach recommends the health plan auditing process to other companies. "It has been successful for us," she observes. - L.C.