Managing health plan expenses is hard enough when you are just dealing with those employees and dependents who are legitimately covered by your plan. But when you unwittingly pay for health care services for people who aren't even eligible for benefits, you are simply adding to plan costs unnecessarily.

Couldn't happen to you, you say? Perhaps. But before you dismiss the possibility, take this little pop quiz on health plan eligibility:

• Who performs enrollment and eligibility update functions for your health plan?
• Does your summary plan description clearly define dependents and support your validation process?
• How quickly are terminations of employment reported to the various vendors?
• When is dependent and other insurance data collected? At initial enrollment only? Or annually at re-enrollment? Or some other time during the year?
• What proof of dependency (documentation) is required?

If you can't answer these questions with confidence, then it's time to consider how your plan costs are being affected by claims paid for ineligible employees and dependents. Suffice it to say that it could be high enough to make it worth the effort of dealing with eligibility systematically and decisively.

The potential for intentional and unintentional abuse of eligibility is high, given the complexity of plan requirements and concern by employees who want to maintain coverage for family members. Figure 1 shows common eligibility mistakes.

Too often everyone assumes that someone else is responsible for checking eligibility. To compound this, many administrators no longer automatically check eligibility. The latter shifts the responsibility to the plan sponsor or an independent vendor.

What can happen when no one is watching? Here are some examples of eligibility-related issues revealed by some recent claims audits:

• $200,000 was paid on claims for an ex-spouse who was maintained as an active dependent after divorce.
• Claims were paid under two different Social Security numbers for one employee; one showed active status, the other showed Medicare eligibility.
• A dependent child's future termination date was entered into the claims system as the maximum age for a full-time student; but no investigation was performed to confirm whether the dependent actually had full-time student status.
• Medicare payments were ignored because eligibility information showed the employee in question to be an active employee, not a retiree.
• The administrator did not perform pre-existing investigations - as a result, all conditions "are covered because the employer approved enrollment in the plan."
• Monthly fees were inflated because enrollment numbers were not reconciled.

At least annually, employers should conduct a participant status reconciliation to check active eligibility, special classification eligibility and terminated status. Along with this process and identification of overpaid claims, employers should consider an operational review to ensure effective procedures are documented and eligibility is communicated to the appropriate vendors.

Often an employer conducts enrollment and provides eligibility data to the administrator, relying on the administrator to monitor ongoing qualifications such as full-time student status and coordination of benefits. Our claims audits indicate that administrators tend to place all verifications with the employer; so it's important to clarify who will take on required tasks and who will perform the necessary investigations. These issues should be clearly defined in the administrative services only (ASO) agreement to avoid misunderstandings in day-to-day operations. Too often the specifics are ignored under general terms. The employer should ask who checks eligibility in the following circumstances:

• Pre-existing investigations
• Verification of prior creditable coverage
• Full-time student status
• Disabled dependent status
• Medicare entitlement due to age or disability
• Court-ordered dependent coverage
• Other coverages (e.g., group, third-party)

Once an administrator or an employer performs enrollment, it's important to understand and clarify the processes used to prevent ineligibles from entering or remaining on the rolls. Key "where the rubber meets the road" questions to ask - and resolve - include:

• Are enrollments conducted at a central location or at multiple sites?
• What documentation is required for enrolling each dependent?
• How is eligibility transferred to the administrator? How often? In what format?
• Is information collected about employees only? Or, is information about dependents (including Social Security numbers) also collected?
• What identifiers are used for employees and dependents? Do they match the relationship codes used by the administrator or is reformatting required?
• Do new electronic updates overwrite all previous entries? If yes, how does the administrator maintain their special notes?
• How are adds, deletes and changes handled? What about overpayments due to retroactive terminations?
• Who performs data reconciliations and reports discrepancies to the employer for investigation or correction?
• Are there time limitations for administrative corrections? Are overpayment recoveries tracked through resolution?

These and other important questions about eligibility rules, determination and monitoring procedures can be addressed in an eligibility audit performed by a qualified external vendor. Eligibility audits offer a variety of approaches to meet employer needs and objectives. Services can be tailored to provide results that will enable the employer to estimate the number of dependents enrolled under the plan without adequate documentation, confirm the effectiveness of current procedures, identify anyone improperly receiving dependent benefits, establish procedures to offer a "grace period" for employees to review and update dependent records prior to conducting a full audit, and assess internal procedures and/or processes for data exchange with the claims administrator.

An eligibility audit offers the employer the opportunity to introduce procedures and policies that place the plan in a more advantageous position for providing benefits at reasonable costs for employees and eligible dependents. Carefully checking eligibility can also save substantial health care dollars.

Key categories for potentialy ineligible dependents

DO NOT QUALIFY UNDER PLAN RULES

• Grandchildren or other extended family dependents with no legal
• guardianship
• Unmarried partners with no recognized relationship under the plan
• Children of live-in partners with no legal relationship
• Children not residing with the participant in a parent/child relationship
• Married children

INELIGIBLE BECAUSE OF QUALIFYING EVENTS

• Divorced spouses
• Stepchildren following divorce of the natural parent
• Overage dependents (not disabled or full-time students)

MaryAnne L. Watson serves as The Segal Company?s National Practice Leader for Claims Audits. She has more than 30 years of experience in the benefits field, where she has specialized in claims analysis and adjudication, group health benefits. Reach her at 602-381-4031 or mwatson@segalco.com. - E.B.N.