With Dependent Eligibility Expansion Looming, Plan Sponsors Should Take Action

In preparation for the January 1, 2011 expansion of health care coverage to children up to age 26, Mercer is urging plan sponsors to review their current health plan for cost-saving opportunities. The influx of newly eligible dependents will on average increase total health care costs from 0.25% to 2%, Mercer estimates.

Because of this anticipated increase in the cost of providing coverage, Mercer believes it is important for plan sponsors to begin 2011 from the lowest cost base possible. By conducting a dependent eligibility audit before the end of the year, for example, plan sponsors may not only reduce their costs in the short term, but also identify data trends and issues for coming plan years that can be better managed and communicated to all plan stakeholders.

“We believe that, even without dependent eligibility expansion, dependent audits just make good business sense,” explained Rich VanThournout, Health and Benefits Business Leader for Mercer’s U.S. Outsourcing business. “Not only do they almost always lower total plan costs, they also give plan sponsors some much needed clarity as to the demographics of their participant community, which empowers both sound cost forecasts and strategic plan design.”

Prior to the passage of health care reform, Mercer conservatively estimated that 3% to 8% of covered family members (spouses and dependents) could not produce valid verification of eligibility during an audit. Although this figure may decrease slightly with expanded dependent eligibility, ineligibles can still translate into a significant unnecessary expense to employers, who pay an average of $2,100* annually to cover a single dependent, according to an estimate based on data from Mercer’s National Survey of Employer-Sponsored Health Plans.

“With the recent economic volatility and difficult business environment, we have already seen a marked increase in clients conducting dependent eligibility audits,” said Dan Priga, National Business Leader of Mercer's Performance Audit Group. “If costs do in fact increase in the ranges we estimate, this will further stress the budgets of plan sponsors. Our message to plan sponsors is this—find every dollar you can now to help minimize the likely cost spike that is just around the corner.”

* Employers should consider their own cost per dependent when calculating their potential savings.

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