Ex-Spouses on the Company Health-Care

Plan
Your employees may have enrolled ineligible dependents on
company-paid health-care plans. Health insurance auditor
Michael Smith discusses how to detect the problem

(Corrects the spelling of ConSova in the first paragraph.)
lnsurance C&A !ulv 03, 2011, 4:22 M Lu1
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. "Were seeing that 2 percent to 5 percent of heath-care expenditures go
toward insuring employee dependents who really arent 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 were looking at a 3
percent savings for the taxpayers."
Were 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 dont qualify legitimately as
children, spouses, or domestic partners. To find out how this happens and what you can do about
it, Businessweek.com 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 companys
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 its 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 werent 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. Its a free-for-all. What you have to know is that
human-resources people generally dont want to upset the apple cart. They want the business to
be a popular place to workand 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-breakingor misunderstandings?
Both. A lot of people arent well-educated about who qualifies as a dependent. Theyve said to
us: "You mean I cant 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. Its 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. Lets 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 dependentand
that its a "court order." In reality, its not the employers responsibility to provide health care.
(The one exception is in Massachusetts and thats 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?
Thats a hard question. Sometimes you see it a little more in Rust Belt areas. But its 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 its more than two, you might want to
investigate. Also, if you have a high percentage of employees who are 40 and over, theres 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, thats 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. Well 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 theyre 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: "Were doing well
enough that we dont care if a few people are putting their ex-spouses on the company
insurance.