(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, 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 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?
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