This article is based on the monthly webinar, The Power of a Dependent Audit: Reducing Your Risk conducted by Lisa Stevens, American Fidelity, and Melissa Swearingen, Hilliard City Schools. The webinar can be viewed on demand here.
How a Proactive Audit Can Help School Districts Control Costs and Strengthen Compliance
Why Dependent Eligibility Matters
While most employees intend to follow the rules, it’s surprisingly easy for ineligible dependents to remain on a health plan due to oversight, confusion about eligibility, or life changes like divorce. Given that the average cost of a dependent is over $4,500 per year, these oversights add up quickly. One district uncovered an ex-spouse whose claims cost nearly $1 million, and another identified two ineligible claims of $150,000 each. Yet another saved over $500,000 after removing hundreds of ineligible dependents. The stakes are especially high when districts are self-funded, and just one big claim can negatively impact any district’s health plan.
Beyond cost control, a DVR can reduce administrative burden by eliminating discrepancies before they become major issues, which helps your benefits team work more efficiently.
Step 1: Choose Your Approach
Before beginning your DVR, decide whether to conduct it in-house or partner with a third-party administrator. While in-house reviews allow for more control and flexible scheduling, they often require significant time from HR staff and can lead to extensive e follow-ups.
They may also place the district staff in uncomfortable situations when reviewing sensitive documentation from coworkers, friends, or family members. In smaller districts, this can create privacy concerns and strain relationships.
Third-party reviews, on the other hand, offer more confidentiality and professional distance. Employees may feel more at ease sharing sensitive information with someone outside their workplace, which can lead to higher compliance and fewer complications.
Step 2: Pick the Right Time
DVRs can be conducted at any point during the year, but timing matters. While some districts choose to align their DVR with open enrollment, this approach has potential downsides.
If an employee simply drops an ineligible dependent during open enrollment, there's often no visibility into whether that dependent was ever eligible—and no opportunity to recoup premiums that may have been paid in error. In contrast, conducting a DVR mid-plan year allows the district to identify exactly who was ineligible and for how long, which opens the door to recovering overpaid premiums.
There are also important legal considerations. Under the Affordable Care Act (ACA), coverage cannot be retroactively rescinded unless the employer can prove fraud or intentional misrepresentation of a material fact. This means that claims already incurred must typically be honored, even if the dependent is later found ineligible—unless legal fraud is clearly documented.
For this reason, conducting a DVR mid-year can give your district greater control and insight. You’ll be able to determine whether ineligible dependents were knowingly covered and take appropriate action, both in terms of coverage adjustments and cost recovery.
Step 3: Communicate Clearly
Transparent communication is essential to the success of a DVR. Employees are more likely to engage when they understand the "why" behind the audit, including how it may reduce plan costs for everyone.
Develop a communications plan that includes:
- Sample language to explain the DVR process and goals
- A checklist of required documents (e.g., birth certificates, marriage licenses, tax forms)
- Details about what happens if an employee fails to participate
Make sure to engage union representatives and other stakeholders early—especially in a collectively bargained environment.
Step 4: Review and Validate
Whether you’re conducting the DVR internally or through a third party, the core task is to validate submitted documentation against your plan’s eligibility rules.
Partner-led DVRs often yield faster and more secure results because:
- No sensitive data needs to be transferred or stored
- Reviews can happen in real time during in-person meetings, allowing immediate validation and fewer delays
- There’s less back-and-forth or delay in processing
Step 5: Notify and Adjust
Once the review is complete, follow a consistent process:
1. Notify employees of any ineligible dependents.
2. Allow employees to adjust their benefits as needed.
3. Maintain records of the audit process and outcomes.
If you’re not conducting your DVR during open enrollment, be cautious to follow Section 125 mid-year benefit change rules to ensure compliance.
Step 6: Make It Sustainable
A DVR shouldn’t be a one-time event. Like routine maintenance on a vehicle, regular eligibility reviews help prevent bigger problems later.
To build a sustainable program:
- Require documentation for all new dependents at enrollment
- Conduct periodic audits (annually or every few years)
- Evaluate prior DVR outcomes to refine your approach
- Keep eligibility rules and communications clear and consistent
Final Notes
A well-executed Dependent Verification Review protects plan integrity, supports compliance, and yields measurable savings while promoting fairness across the workforce. With the right preparation and communication, a DVR can become a trusted and routine part of your district’s benefits strategy.
Melissa Swearingen can be reached at melissa_swearingen@hboe.org (614) 921-7000. Lisa Stevens can be reached at Lisa.Stevens@americanfidelity.com or 513-770-1715.