Employers Are Pushing Ineligible Dependents Out of Plans

By Rita Zeidner
Special to The Washington Post
Tuesday, October 13, 2009

Are your marriage certificate and your kids' birth certificates handy? You may need them to continue health coverage for your family or if you start a new job.

Call it a sign of the times: A growing number of area employers, including the Commonwealth of Virginia, Johns Hopkins University and the Navy Federal Credit Union, are cracking down on workers who enroll ex-spouses, over-age children, grandchildren and others not entitled to coverage under their health plan. It's a cost-control strategy that Ford, AT&T and other Fortune 500 companies have used for years.

"Employers are seeing costs go up 10.5 percent yearly. Changing plan design and contribution strategies can only go so far," said Michelle Futhey, executive vice president with Aon Consulting's health and benefits practice.

"Contribution strategies," for anyone not familiar with the term, means shifting health plan costs to employees.

Dependent eligibility audits, where employers demand that workers and retirees show documents proving that their claimed dependents qualify for health benefits, are quickly becoming the norm, said Jeri Stepman, a senior adviser at Watson Wyatt, an Arlington-based benefits consultancy. More than 60 percent of large U.S. companies conducted such audits this year, compared with fewer than half in 2007, according to the firm's survey of 489 employers. Even more companies are expected to conduct such audits next year.

Many state and local agencies also are auditing dependents, although the federal government is not. Federal health plan participants are only required to show proof when they add a dependent to their policy, according to an Office of Personnel Management spokesman.

Employee nutritional counseling, diabetes management, gym discounts and other trendy wellness initiatives might show results over many years. But for guaranteed savings, nothing beats weeding out people an employer never intended to cover, said David Chojnacki, vice president of Budco Health Service Solutions, which has conducted dependent audits for more than two dozen Fortune 500 companies.

Chojnacki said his firm, based in Highland Park, Mich., conducted an audit of 650,000 dependents at AT&T in 2006, turning up 50,000 ineligibles. Removing them from the insurance rolls, he said, saved the company $100 million a year. AT&T spokesman Walt Sharp would not comment on that claim but confirmed that the company had "taken steps to audit eligibility and to install controls to validate dependent eligibility on an ongoing basis."

A recent audit of 14,000 dependents and spouses on Johns Hopkins' health plan turned up 454 ineligibles, said Heidi Conway, the university's senior director of benefits. Culling them saved the university an estimated $2 million a year.

"It's part of our fiduciary responsibility to control health plan costs," Conway said.

The Washington Post began auditing dependents in its health plan several years ago.

Unions generally go along with the audits and in some instances work with management to get reluctant employees and retirees to go along. "We used to hear complaints," said Martha Flagge of the Communications Workers of America, which represents workers in companies that do audits. "But once we explain that they help keep health care affordable, employees understand."

"It's the right thing to do," said Sara Wilson, director of human resource management for the Commonwealth of Virginia, which recently launched an audit of the 52,000 state employees and dependents who signed up for health benefits in 2010. "It's good stewardship of the plan and taxpayer dollars. On average, the state pays about $2,000 in benefits per dependent per year. If we do things right, [the audit] will save us a little bit of money." It's been at least 12 years since the state conducted such an audit, she noted.

"You want to trust employees, but you also want to verify," said Nancy Astorga, vice president for compensation and benefits at Navy Federal, with 7,100 employees worldwide. A random audit of 150 employees in 2007 turned up only a handful of ineligibles, she said, but exposed weaknesses in communicating eligibility rules that the company was then able to address.

Ford, among the first to conduct eligibility audits, keeps particularly close tabs on those with dependents between ages 19 and 24, according to spokeswoman Marcey Evans. "This is because 19- through 24-year-olds are more likely to become ineligible due to dropping college courses, not being claimed as a tax dependent or moving out of the employee's home." She credits tighter enforcement with a drop in the average number of health plan members per policy from four to two.

"Although some employees view the dependent eligibility audits as an inconvenience, they are necessary," she said.

Asking married policyholders to show their marriage license is a routine part of the audit, although some employers also ask to see a joint tax return or utility bill to be sure that a couple hasn't divorced. Birth certificates are also demanded to ensure a child hasn't aged out of the plan, although additional proof, such as a tuition receipt, may be required when age limits are extended for full-time students.

Virginia announced its upcoming audit in early spring and urged employees to review health plan rules before enrolling dependents during the state's health plan open season in May and June, according to Wilson. Amnesty was promised to anyone who dropped ineligibles from their plan voluntarily by July 1, when Virginia's health plan year began.

Dependent enrollment is down by 1,200 individuals compared with last year, but Wilson declined to say what portion of those who left the plan were ineligible for benefits.

From now on, state workers who try to include an ineligible person in a policy could have their own coverage temporarily suspended and their dependents dropped permanently. They may also be required to repay any medical benefits the ineligible party received.

In addition, the state is requiring everyone who signed up for dependent coverage to sign an affidavit attesting to their dependents' eligibility. In the future, all new state workers and current plan participants adding dependents must show their marriage license if they are adding a spouse and birth certificates for children.

Some employees might deliberately try to cheat on health coverage. But there are other, less sinister explanations for how ineligibles get enrolled. At many organizations, for example, employees and retirees pay the same premium regardless of how many dependents are covered under their policy. Thus, it may never occur to some to take a child's name off their policy, even after the child is too old to be covered, according to Chojnacki. The risk for the employer is that the over-age dependent will file a costly claim.

Furthermore, rules governing whom a plan will cover vary wildly among employers and can be confusing, especially where stepchildren, live-in grandchildren, college-age students and domestic partners are concerned. (Unlike many employers, Virginia doesn't cover dependents older than 22, even if they are full-time students. Domestic partners are also ineligible for coverage.)

Some workers mistake a divorce order requiring them to provide a former spouse with health benefits for permission to enroll the ex in their plan, said Helen Darling, president of the National Business Group on Health, a District-based employer alliance.

Workers with questions about eligibility should speak to their employer, Darling said. If an employee voluntarily reports an ineligible dependent, some companies may agree to continue coverage through the end of the plan year or extend coverage if the individual picks up the full premium.

"Usually companies don't want to take too hard a line against employees," she said. "They are probably more forgiving than they ought to be."

Meanwhile, a new law gives a break to college students who become seriously ill. Many employers cover dependents older than 20 only if they are in school full time. Federal legislation known as Michelle's Law went into effect Oct. 9; it allows full-time college students to take a medical leave of absence from their studies without jeopardizing their eligibility for health benefits. The law is named for Michelle Morse, a New Hampshire college student who continued taking classes while she received chemotherapy for colon cancer because she couldn't afford to lose her insurance coverage. She died in 2005 at age 22.

Rita Zeidner is an Arlington freelance writer who frequently covers workplace health issues. Comments: health@washpost.com.

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