Employers are starting to crack down on ineligible dependents in health plans

Personal Finance

October 15, 2006|By Eileen Ambrose | Eileen Ambrose,Sun Columnist

Sign up family members for your employer's health insurance during open enrollment, and you might hear this from the company: "Prove it."

You might be asked to produce birth certificates, adoption papers or college transcripts to show that a child is eligible for your health plan. Or you might have to dig up a marriage license to confirm a spouse.

These "dependent audits" have been around for a long time, but started taking off recently as employers have wrestled to keep health care costs down. Audits generally find that 2 percent to 15 percent of dependents aren't eligible, said Sara Taylor, a benefits expert with Hewitt Associates.

Sifting out freeloaders can create substantial cost savings for employers, considering they foot up to 75 percent of the health care tab and their costs rise as much as 12 percent a year, said Randall Abbott, senior consultant with Watson Wyatt Worldwide.

Ford Motor Co., for instance, pared more than 60,000 ineligible dependents from its insurance rolls since starting audits in 2000. Spokeswoman Marcey Evans won't say how much the audits saved, but it's likely well into the hundreds of millions.

The automaker last year spent $3.5 billion on health benefits, and now covers 550,000 workers, retirees and family members. That would put the cost of health care at more than $6,300 per person.

Chrysler Group followed Ford's model in 2001, ?? early yearsdropping 26,000 individuals who weren't entitled to insurance. The automaker this year will spend $2.3 billion on health care for about 360,000 people.

"We spend more on health care than on steel for our vehicles," said spokesman David Elshoff. Chrysler spends $600 per vehicle for steel. "Health care adds $1,400 to every car we make," he said.

Besides automakers, airlines, restaurants, hotels, retailers and newspapers are jumping on the audit bandwagon. (The Tribune Co., which owns The Sun, will launch an audit next year.)

Audits basically work like this: The employer sends a letter describing dependents eligible for coverage, usually a spouse or children until they graduate from college.

Workers are given an amnesty period lasting a few weeks or months where they can voluntarily drop dependents with no questions asked. Ford gave salaried and hourly workers two chances to come clean in the first two years of the audits.

Ineligible dependents are usually former spouses, adult children who are married or no longer in college, nieces and nephews, siblings, grandparents and grandchildren not under legal guardianship.

After workers have a chance to make things right, the company audits its insurance rolls. It might look at a random sample or every person in the plan with dependents. Workers must prove relationships through birth or marriage certificates, residency records, college bills, guardianship papers or part of the tax return that doesn't contain financial information.

In Chrysler's case, only half of ineligible dependents were dropped during the amnesty period, Elshoff said. The other half were uncovered in the subsequent audit.

Some companies just drop ineligible participants once they're discovered. Others, including Ford and Chrysler, require workers to repay any claims or costs incurred by the ineligible person.

Occasionally, workers are fired, said Taylor, with Hewitt Associates.

Employees usually can appeal a decision to drop a dependent from the plan.

More often than not these cases are honest mistakes, benefit consultants said. Employees often don't understand the rules. Or, they forgot to tell their employer that their home situation has changed.

But there are workers who knowingly bend the rules.

Many times it's workers keeping a former spouse on the plan, knowing their one-time mate doesn't qualify any more, said Jim Bevins, with Budco, a Michigan auditiing company.

"With health insurance being very expensive and many not having access to health insurance ... many people don't think of this kind of thing as fraud," said Watson Wyatt's Abbott. "They think of it as solving the problem. They see the employer having deep pockets."

Workers advocates say they can't blame employers.

"I would love to get outraged over this, which I often do when I hear what Corporate America is up to," said Lewis Maltby, president of the National Workrights Institute in Princeton, N.J. "It doesn't seem all that unfair."

He added, "You would hope they wouldn't cut legitimate people out because you don't have the right piece of paper."

Thea Lee, policy director with the AFL-CIO, said audits point to a bigger problem.

"We have a national problem with health care coverage," she said. "And we need to find a national solution that provides universal access so that families and employers don't find themselves in this awkward position."

Indeed, audits will likely increase the rolls of the uninsured, a figure that now exceeds 46 million.

Workers sometimes grouse about producing records. But often they get on board, figuring the employer might reduce benefits or raise premiums for all workers if health care costs aren't controlled. Some employees even blow the whistle on co-workers gaming the system, said Hewitt's Taylor.

If your employer conducts an audit, don't ignore the requests for documents, Taylor said. If you miss a deadline, the employer could drop your dependent from the plan, even if the person is entitled to coverage, she said.

And for those not going through an audit now, be prepared. "This is probably where things are headed in the future," Taylor said.

"You don't need to keep your marriage certificate next to your bed stand. But keep it handy."

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com. Podcasts featuring Ambrose can be found at baltimoresun.com/ambrose

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