A common problem for many health plans is the coverage of ineligible dependents. Coverage of ineligible dependents often happens when a dependent’s circumstances change which causes the dependent to lose eligibility—for example, on a child’s twenty-sixth birthday or when a spouse gets a divorce—and the participant forgets to or doesn’t realize he needs to notify the plan administrator. Less honest participants may also lie about their relationship with a “dependent” in order to have them covered under the plan.
The first step to identify these ineligible dependents is to require documentation, such a marriage certificate or birth certificate, upon initial enrollment in the plan. Second, make sure to communicate to participants that they must inform the plan administrator about any changes that could affect eligibility. Third, conduct dependent audits regular to identify ineligible dependents. All these steps help plan sponsors comply with federal law, as ERISA requires plan sponsors to enforce the rules of the plan, including rules regarding eligibility.
Once an ineligible dependent is identified, he or she will need to be removed from the plan. But what happens if the plan has already paid claims while the dependent was ineligible? First, look to the plan’s governing plan document for guidance. If it does not provide guidance, consider amending the document to do so. One option is to declare that the participant committed fraud and demand reimbursement immediately—however, unless the participant knowingly lied to the plan, this may be a harsh consequence. Another option is to set up a reasonable payment plan with the participant until the plan recovers all improper payments.