Insurance fraud in the workplace? Evidence from a dependent verification program

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Date: Dec. 2015
From: Journal of Risk and Insurance(Vol. 82, Issue 4)
Publisher: John Wiley & Sons, Inc.
Document Type: Abstract; Report
Length: 9,678 words
Lexile Measure: 1570L

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Many employers have implemented dependent verification (DV) programs, which aim to reduce employee benefits costs by ensuring that ineligible persons are not enrolled in their health insurance plans as dependents. We evaluate a DV program using a panel of health plan enrollment data from a large, single-site employer. We find that 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. There is some evidence consistent with the notion that these dependents were actually ineligible, rather than merely discouraged from reenrollment by compliance costs. We find no indication that the removal of these ineligible dependents spilled over to affect the enrollment of eligible dependents within the same family.


In the United States, most workers who receive health insurance through an employer also enroll one or more dependents. (1) A significant fraction of employers' healthcare expenditure is attributable not to employees themselves, but to these dependents, who typically account for about half of the population enrolled in employer plans (U.S. Census Bureau, 2011). Because employers often heavily subsidize the costs of insuring dependents, these health benefits can create incentives for workers to try to enroll individuals who do not actually qualify for them. (2) Typical employer subsidies yield thousands of dollars in expected benefits that an employee could exploit by claiming (say) a niece or a nephew as a child. (3) On the other hand, outside of their contribution to the premium, the expected cost to employees of falsely claiming a dependent is about zero--in general, the only consequence of discovery is simply removal of the ineligible individual from the policy. In short, strong incentives exist to claim ineligible dependents.

To help rein in costs and prevent abuse, in recent years many employers have implemented dependent verification (DV) programs, which aim to ensure that ineligible persons are not enrolled in their health plan as dependents. Typically, DV policies require employees to present documentation proving the status of dependents, like marriage licenses for spouses and birth certificates for children.

While almost nonexistent a decade ago, DV programs are gaining popularity. In the private sector, many large firms have implemented verification programs or performed dependent audits in recent years. (4) Of the 507 large firms surveyed in 2010 by the management consulting firm Towers Watson (2010, p. 7), 55 percent had a DV program in their health plan in 2008, 61 percent in 2009, and 69 percent in 2010. In the public sector, weeding out ineligible dependents has been seen as an easy way to trim state and local employee compensation budgets. By 2012, at least 38 states had implemented DV or audit policies for state employee health plans. (5) States almost universally cite the cost burden of ineligible dependents as the motivating factor.

Do these programs actually reduce ineligible enrollees and the associated costs? Some anecdotal evidence suggests that they do. (6) But despite such claims, we are aware...

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Gale Document Number: GALE|A448135947