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Insurance Q&A

Ex-Spouses on the Company Health-Care Plan

(Corrects the spelling of ConSova in the first paragraph.)

Employers looking to cut health-care costs just might find a way to do it without having to embrace such pesky measures as raising prescription drug co-payments or narrowing the field of in-network doctors. "We’re seeing that 2 percent to 5 percent of heath-care expenditures go toward insuring employee ‘dependents’ who really aren’t eligible dependents," says Michael Smith, founder of ConSova, a Lakewood, Colo., firm that performs health-care audits for client organizations. "We just did an audit for the city and county of Denver, and we’re looking at a 3 percent savings for the taxpayers."

We’re not talking about the employee who occasionally lends a health-ID card to an uninsured family member in need of a trip to the urgent-care center for a sprained ankle. Many employees have enrolled on their company-paid insurance individuals who don’t qualify legitimately as children, spouses, or domestic partners. To find out how this happens and what you can do about it, staff writer Rebecca Reisner recently spoke to Smith. Edited excerpts of their conversations follow.

Rebecca Reisner: How did you become aware of this trend?

Michael Smith: Back in 2003, a client in Kansas City said: "I want to talk to you about a business problem and get your raw reaction to it." It turned out that on average, the company’s insurance policy had a ratio of about three-and-a-half dependents per employee (not factoring in employees who had claimed zero dependents). I knew this was a little high. Normally it’s around two-to-one. It turned out the company had been building plants around railroads, and ancillary businesses like groceries stores were springing up around them. But the manufacturer was one of the few employers in the area that offered health insurance, so people who worked there were enrolling people who weren’t dependents.

Why is it so easy for employees to enroll ineligible people?

In a lot of organizations, signing up dependents for insurance is basically on the honor system. No one is requesting verification of dependents. It’s a free-for-all. What you have to know is that human-resources people generally don’t want to upset the apple cart. They want the business to be a popular place to work—and retain employees. For HR people to ask employees to verify the status of a dependent goes against their grain.

Does this phenomenon occur because of intentional rule-breaking—or misunderstandings?

Both. A lot of people aren’t well-educated about who qualifies as a dependent. They’ve said to us: "You mean I can’t cover my ex-wife?" On the other hand, at one client company, we sent out letters explaining to employees the definition of "dependent" and stated who was eligible. Afterward, we still found that 10 percent to 12 percent of the dependents employees were claiming were ineligible. It’s just a little too tempting to claim people as dependents if all you have to do is check off a box.

What category of ineligible people most often turns up on employees’ insurance policies?

Ex-spouses. Let’s say I divorce my spouse. If her attorney negotiates that I have to provide health care for her, I might think I can still put her on my insurance policy as a dependent—and that it’s a "court order." In reality, it’s not the employer’s responsibility to provide health care. (The one exception is in Massachusetts and that’s only in certain cases.) Former step-children [also an ineligible group] turn up on policies a lot, too.

What about adults sneaking their parents on insurance?

Yes, it happens. Some people do claim a parent as a spouse.

Can you point to geographical areas of the country where the ineligible-dependent problem is particularly prevalent?

That’s a hard question. Sometimes you see it a little more in Rust Belt areas. But it’s more something that happens when people have complex family issues, regardless of where they live. And hospitals sometimes have high rates of ineligible people on insurance policies because you have nurses working there and they naturally want to nurture other people in their lives.

How can an employer detect a problem?

Look at the ratio of dependents per employee. If it’s more than two, you might want to investigate. Also, if you have a high percentage of employees who are 40 and over, there’s a good chance you have some divorced spouses on your insurance. You might want to talk to the people who handle 401(k)s for your workers. When people get divorced, the first thing they do is split up assets. If you see employees who are getting their pension assets split up and still have a spouse on their health insurance policy, that’s an indication you might have an ineligible dependent.

Will the trend toward legal same-sex marriages change the landscape of your business as an auditing company?

No. We’ll treat them the same as opposite-sex married people. We just ask for a marriage certificate. Typically when we audit same-sex domestic partners, we find they rarely try to put ineligible people on their policies.

What are the options for employers who think there are ineligibles on their health insurance policies?

Pick up the phone and talk to other business owners. Ask them what services they’re using to help them out with this problem. Network with people in the Society for Human Resources Management. Then decide whether you need to do your own audit or have an outside firm do it. Or if there are a lot of other priorities for your company, you might just say: "We’re doing well enough that we don’t care if a few people are putting their ex-spouses on the company insurance.&quot

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