This post is a must read for any plan sponsor who does client work with the federal government and submits employee benefit related expenses associated with contractors on the job. I want to thank Dependent Audit Eligbility veteran, Brennan Clipp, for sharing with me an internal memorandum obtained from the Federal Government's Deparment of Defense ("DOD"). Even if an employer might not contract directly with DOD, we can be certain other government agencies issuing awarding contracts on large public works projects will follow similar protocol. In fairness to our U.S. government, they are simply saying that reimbursement for the cost of fringe benefits are allowable from contractors and dependents of those contractors, as long as the dependent adheres to the eligibility under the plan. Further, "contractor's that fail to implement sufficient procedures to identify and exclude health benefit costs associated with ineligible dependents are in noncompliance with FAR 31.201-6 and CAS 405. They are recommending that contractors put in audit and process procedures to protect against ineligible dependents.

As is a common practice for plan sponsors who do a lot of design and build work for the Federal Government, reimbursement is often a part of contract reimbursement sought for employee benefit expenses related to contractors and their dependents covered under an employee benefit plan. The irony here is that the left hand of government recently gave us expensive health insurance legislation and the right hand of government is warning against seeking reimbursement of those expenses for [ineligible] contractor benefits.

The Memo we obtained here esentially warns a plan sponsor against submitting any healthcare related expenses associated with ineligible employees or dependents who do not strictly adhere to the eligibility guidelines under the ERISA plan. Ms. Clipp's firm warns against an employer taking on this project themselves or leaving it to a service provider that does not follow evidence based guidelines for verification. When done correctly, ineligible dependents can average between 12-18% disenrollment. This does not come as a surprise with unemployment hovering near 10% and escalating healthcare costs. Finally, an ongoing audit process can ensure ineligible insured's do not creep back onto the plan when the guard goes down. Another reason for doing a dependent audit stems from the ERISA fiduciary obligation implicit to other eligible enrollees under the plan.

There are a number of high-quality speciality firms and important cultural and senior management issues to address internally before human resources should launch. The notion of eligibilty management as a cost saving tool is not new, but the federal government's validation of a dependent audit as a cost savings mechanism was strong enough to provoke this notice out to field auditors of the Federal Governement.

If you're not sure of the Top DOD contractos ... here's the list of the top 100:

http://en.wikipedia.org/wiki/List_of_United_States_defense_contractors