The giant California Public Employees’ Retirement System (CalPERS) dropped health coverage for 8,940 people after a series of audits turned up people it said were unqualified to receive benefits.

The multi-stage Dependent Eligibility Verification (DEV) project was launched in March 2012 to find out how many of the 730,000 health dependents were cheating. It was thought that as many as 29,000 ex-spouses and other ineligible dependents might be involved. Nearly 1.5 million government employees, retirees and their dependents receive medical insurance through CalPERS.

The first phase of the project offered amnesty to those who came forward and admitted their indiscretions. CalPERS threatened to cancel coverage retroactively for people caught after the amnesty, which might leave subscribers unexpectedly liable for medical expenses.

The phase was concluded on June 30, 2013, when 4,851 subscribers voluntarily removed 6,722 fake dependents. CalPERS said that saved $41 million. Those who accepted amnesty were offered the option of switching to COBRA, a federal program that allows continuation of coverage at often twice the price.

Subscribers were required to prove the legitimacy of dependents during Phase 2. So far, CalPERS has executed five of eight verification audit cycles, for a total estimated savings of at least $64.7 million. Four additional cycles are expected to yield additional savings.

It’s not certain how many of the dependents deemed ineligible are really unqualified to participate. Subscribers were required to provide paperwork to support their claims, which can be negatively affected by poor communication, paperwork mistakes and bureaucratic snafus.

For instance, those people no longer in possession of their marriage certificates had to apply for an Affidavit of Marriage and get the signatures of both parties notarized. That document had to include a special reference number provided by the contract vendor who conducted the project and be submitted with a secondary piece of identification.

Discovery Health Partners warns in “Strategies for a Less Painful Dependent Eligibility Verification” that dependent audits, which have been around for more than 15 years, but have become more popular among employers in recent years, “can lead to confusion, frustration and anger among employees.” The New York Times, writing about dependent audits in 2010, said, “Many workers who have dependents deemed ineligible during an audit had no idea they were violating any rules.”

The audits, understandably, are more popular with employers than employees. The Wisconsin State Journal reported in November 2012 that the nurses’ union at Meriter Hospital in Madison objected to an audit conducted by the company ConSova and wanted to make it subject to contract negotiations:

“Our concerns include lack of a valid justification for mistrusting our nurses and support staff, privacy violations, the cost and inconvenience of obtaining documents, and conflicting information from ConSova regarding the safety and security of the information that was being demanded.”

The audit was eventually completed.

The CalPERS audit also met resistance from some of its subjects. Judge Albert Gilbert of the California Second District Court of Appeal wrote:

“I am not a crook. It appears that CalPERS, the California Public Employees' Retirement System, believes that I and the thousands of other state employees and our dependents who are in the CalPERS retirement and health insurance program just might be crooks. . . . In its zeal to save money, CalPERS has spent money, our money, to hire HMS Employer Solutions. . . . And do the geniuses at CalPERS who dreamed up this scheme actually believe that they will win the lawsuit just itching to be filed? . . . Darn. It just occurred to me—if I were assigned to hear such a case, I wouldn't put it past CalPERS or HMS to move to recuse me.”

–Ken Broder

To Learn More:

CalPERS Drops Nearly 15,000 from State Health Rolls (by Jon Ortiz, Sacramento Bee)

Companies Crack Down on Defining Dependents in Benefit Plans (by Lesley Alderman, New York Times)

Dependent Eligibility Verification Project Update Presentation (California Public Employees’ Retirement System) (pdf)

Dependent Eligibility Verification Project Update (CalPERS Pension & Health Committee) (pdf)