Who Steals Healthcare Insurance?

What happens when a firm starts a “dependent verification” program designed to make sure that its employees are carrying only legitimate dependents on their health insurance? The economists Michael Geruso and Harvey Rosen ask that question in a new working paper called “Fraud in the Workplace? Evidence from a Dependent Verification Program” (abstract; PDF). A few key sections are bolded below:

In recent years many employers, both in the private and public sectors, have implemented dependent verification (DV) programs, which aim to reduce employee benefits costs by ensuring that ineligible persons are not enrolled in their health plan as dependents. However, little is known about their efficacy. In this paper, we evaluate a DV program using a panel of health plan enrollment data from a large, single-site employer who implemented it several years ago. We find that relative to all other years, dependents were 2.7 percentage points less likely to be reenrolled in the year that DV was introduced, indicating that this fraction of dependents was ineligibly enrolled prior to the program’s introduction. These disenrollment effects were especially large for same-sex partners and older children. We show that the program did not induce employees to leave the employer’s plan and (say) put themselves and their dependents on the spouse’s plan. We also show that disenrollment occurred because dependents were actually ineligible, not because of compliance costs that might be associated with providing documentation. The DV program saved about $46 per enrolled employee. A considerable fraction of these cost savings came from removing older children who didn’t meet additional criteria. Therefore, the dependent coverage provision of the Affordable Care Act of 2010, which essentially renders all children up to age 26 eligible in all employer health plans, will substantially limit the future cost saving potential of such programs. Hence, as the state governments and private employers that have implemented DV programs adapt to the new regulatory environment, the popularity of dependent verification programs may well diminish.

The next time you’re counting up all the reasons why employer-based healthcare insurance is a bad idea, you can include this one, too.

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  1. Seminymous Coward says:

    $46 per employee and all you have to do is kick people off health insurance? It even disproportionately affects same-sex couples without having to explicitly discriminate. It’s like an evil CEO stereotype’s dream.

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  2. Chad Morgan says:

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    • Enter your name... says:

      He didn’t say that he favored government-run healthcare, only that there were problems with employers controlling health insurance.

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    • Jane says:

      I slightly disagree with the original conclusion that this study is more proof that employer-based healthcare is a bad idea, but I disagree even more strongly with your suggestion that ” HC is just like any other human endeavor, need or desire”.
      For one thing, healthcare is probably one of the few things you can be force to consume while you are unconcious, and then pay for later. Also, there is obviously a difference of available information between you and the army of doctors specialists who are telling you what to buy (educated on the governments dime) . Putting you in a room of cancer specialists and telling you to choose what treatment to buy would be like throwing a sheep to the wolves.

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      • Chad says:

        I think his intent was clear…am I wrong?

        I disagree on your contention that HC is and/or will be forced upon anyone as an argument for government HC – since when did unelected bureaucrats become everyone’s saviors? I submit that your example highlights the fact that none of us are specialists in many, many areas of life; and yet most of us get by very well when deciding what advice to follow (relatively speaking).

        HC, as a consumable good and service, is not any different in that regard. If you are unconscious or otherwise incapacitated, it is a crap shoot regardless.

        For daily living I am pretty sure most people know Ho-Hos and cigarettes do not a good diet make…and many choose accordingly. Are you suggesting that the good public servants intrude upon those dietary (and other) choices?

        Then I ask why not turn your whole life over to these servants? Your premise can apply in many other areas – and I’ll need food well before HC…

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    • tung bo says:

      Let’s look at real life examples instead of speculations.

      Hong Kong government has minimal involvement with HC except for funding public hospitals for the destitute. Only the desperate would go to those places. Everyone else pay cash or use an employer paid insurance. Are there HC center on every street corner? Nope.
      There are many private doctors who will take your cash and make you buy prescription drugs from them. (at their own mark ups)
      It also may surprise you to know that in the socialist country of China, hospitals insists on CASH prepayment. No money, no operation. No matter how desperate you might be. Is THAT the system you want?

      HC risk is actually very sensibly managed with insurance. Most illnesses are short and can be treated relatively cheaply. But there are tail events such as cancer or long term illness that are costly beyond the average family’s mean. By spreading the cost of such tail events among a larger population (who are all at risk), one can avoid the bankruptcies of the families unlucky enough to be affected.

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      • Chad says:

        I am not suggesting no involvement – I suggesting minimal involvement…there is a difference. And I bet we could easily create a high quality system with services on many corners (if not almost all)…I posit we do not primarily for power and money reasons, not resource constraints…

        China does not surprise me – I am well traveled and have been to China, too. I’ve had bona-fide trained and licensed doctors as direct and indirect reports…I know a little bit, enough to be dangerous with misinformation, of various other HC schemes. I find it ironic that when I ask an EU person (whether Irish or German or wherever) about their HC system, almost all says they love it – and yet when I ask deeper questions almost all (if they are well read or traveled) reveal their envy of the USA’s current system in that we have many choices, high quality and “immediate” services as opposed to their lines and fewer choices. And they soon lament about how their system negatively impacted them or a loved one.

        My point is that many government heavy systems are not well liked, effective or efficient either…and yet we seem to be running right to them. Anyone asked a Canadian about their HC? Try asking someone in Canada who has a daughter with tonsillitis….

        But I’ll not win this debate – I see too many comments indicating that people think they cannot take care of themselves…

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  3. Matt Lurton says:

    The problem is not just with children & same sex partners. Same sex partners can be covered legitimately by plans if set up that way. We have had many CUI 1002 O4plans that employees have left ex-spouses covered for years after their divorce. Also many times these individuals have duplicate coverage at their own jobs. Why cover all these people who are not eligible and thus have fraudulent insurance coverage? A good, fair plan will take care of employees and their true dependents without bankrupting the company. For non-dependents it is just as wrong as stealing company office supplies & equipment. If the plan at your job does not cover you and your dependents like you need then get out and find an employer who does.

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  4. Mike says:

    CalPERS, the California Public Employee Retirement System, recently sent a letter to its 1.6 million members declaring amnesty for removing dependents that are no longer eligible for dependent coverage.

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  5. James says:

    Pardon me for thinking, but would not the same sort of ineligible dependents on a policy be just as likely to happen with non employer-based health insurance coverage?

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  6. econobiker says:

    The Dependent Verification programs also target divorced parents to make sure that minor children are not covered under two plans…

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