CalPERS Pays Out $65 Million in Medical Benefits and Another $2 Million Per Month in Premiums for 'Ineligible' Individuals

State's Been Leaking Approximately $90 Million a Year Via Inadequate Defenses Against Insurance Fraud

I love how these stories get spun as savings to the taxpayer.  Yes, it is great news that we are no longer paying for state workers to commit insurance fraud.  But if the state had actually been doing its job in the first place, we could have prevented the squandering of millions of taxpayer dollars.

Dependent audits are always a good idea on large plans.  No matter how diligent a plan sponsor is, some dependent fraud occurs.  For example, employees can divorce, fail to report the event to their employer, and illegally choose to keep that ex-spouse on the employer's plan.  This form of insurance fraud is nearly impossible for an employer to catch without an audit. 

However, more flagrant and preventable forms of dependent-enrollment abuse also occur when employees enroll friends and family members who are not legal dependents (like girl/boyfriends, uncles, aunts, parents, nieces and nephews, etc).  It is not uncommon for employees to bilk an employer out of 5% to 15% of a plan's total cost with phony dependents.

And now we learn that the California taxpayer has been paying $2 million a month in premiums and a total of $65 million in claims for fraudsters to cover unqualified individuals in CalPERS.  This is from Jon Ortiz at the Sacramento Bee:  

CalPERS has dropped health coverage for nearly 9,000 people over the last year after a sweeping audit revealed they weren’t eligible for benefits received through state-worker and state-retiree health plans. 

When added to roughly 5,300 ineligible dependents voluntarily removed from state insurance rolls last year, agencies are saving more than $2 million per month in premium payments alone, according to a report prepared for CalPERS Board of Administration. Scrubbing the rolls has saved the state another $64.7 million in avoided claims for doctor visits. hospitalizations, medication and other health services, the report states. 

CalPERS launched an audit of dependents on state agencies’ medical-insurance rolls last year. At the time, the fund estimated about 29,000 ex-spouses, live-in partners and other so-called “ineligible dependents” were receiving coverage who shouldn’t have been. It figures to finish the dependent-eligibility verifications of local agencies and schools in the first quarter of 2015. 

CalPERS provides medical insurance for a 1.4 million government employees, retirees and their dependents. 

Note that this audit only yielded a 1% reduction in plan participants (14,300 out of 1.4 million).  When my co-workers assisted one of our clients, El Camino Hospital, on a similar audit they generated a 7.6% reduction in plan participants.  Average audits yield 4% to 8% reductions.

If California auditors had simply performed at the very low end of average for this audit, we should have seen four times the amount, or an annual savings of $360 million.  Alas, I suppose it is fanciful for me to assume our state can operate at "the very low end of average."

On Tuesday morning November 18th, the Armstrong and Getty Show covered this as well. Here is a portion of that audio.