After giving insurance subscribers a chance to step up on their own, CalPERS has launched a series of audits intended to clear out tens of thousands of people receiving government health coverage who don't qualify for benefits.
The nation's second-largest health insurance purchaser suspects at least 22,000 people covered by state and local agencies' plans shouldn't be on the rolls. Removing people who by mistake or deception aren't supposed to be covered by CalPERS will save taxpayers tens of millions or even hundreds of millions of dollars a year, if early indications hold true.
Starting with state employees, auditors will ask subscribers to confidentially submit proof of their relationship with dependents, such as a copy of a marriage certificate or a joint tax return.
Specialists with experience in authenticating documents will verify or deny the relationships.
Anyone who doesn't meet the criteria will be dropped from the health rolls.
"What we've found mostly is ex-spouses on plans," said Sara S. LaVallee, senior vice president with William Gallagher Associates, a Boston-based firm that audits employers' health insurance rolls. "Someone gets divorced and they just don't tell HR."
"Employers are desperate for ways to cut cost," LaVallee said. "This is seen as a fairly easy way to do it."
During a three-month amnesty period that ended June 30, nearly 5,000 subscribers removed a total of 6,722 people from their plans, an anticipated annual savings of $41 million.
"We were a little surprised by the numbers," said Ann Boynton, who over oversees CalPERS' benefit programs policy. "They were higher than we expected."
That's because after reviewing the experiences of other states, CalPERS estimated last year it would save $40 million after sweeping from the rolls an anticipated 29,000 wrongly listed children, ex-spouses, nonregistered live-in partners and others listed as dependents of government employees.
But if the trend continues, CalPERS will save about $177 million annually, more than four times what it originally thought.
Doug McKeever, CalPERS' chief of health policy and program support, said the higher figure comes from a combination of factors, including lower claim costs, lower employer premiums for subscribers switching into less-expensive plans with fewer or no dependents, and avoiding new federal fees tied to employer-provided coverage.
On behalf of state and local governments, CalPERS spends roughly $7 billion annually to provide medical benefits for a combined 1.3 million workers, retirees and their dependents.
Only the federal government spends more on employee health care.
With the amnesty over, the auditing process clicks into a more aggressive phase by requiring subscribers to prove their relationships with covered dependents on their insurance plans.
HMS, a global auditing firm CalPERS has hired for $3.5 million, is dividing its validation checks of some 369,000 subscribers by groups. The firm will begin with state employees in a review from now through June 1, 2014. Verification of local agencies' employees will run another six months ending in December 2014. School district employees will be scrutinized through February 2015. HMS will review employees hired after the verification process started from March 2015 through June 2015.
Employees and retirees sometimes ask why they have to turn records over to a third party. The reasons, LaVallee said, are both practical and political.
Relationship verification requires investigative tools not found in most HR shops, including special software and people with skills in document analysis and authentication.
Documents flood in using different languages, LaVallee said. Citizenship issues can add another layer of complexity.
"There's a lot of interpretation with this stuff. It's not black and white," she said. "And it's time-consuming. A lot of people won't even respond to you, so you end up chasing them."
Outside contractors also can make their determinations without prejudice, she said. Everyone from the CEO to the lowest office worker on the corporate ladder gets the same treatment.
And by its nature, telling employees that they have to prove their relationships assumes medical plan subscribers are guilty until they prove their innocence. That risks offending employees, so it makes sense to hand off the work.
"If you look at it from the employers' perspective, there's an element of not wanting to be the bad guy," LaVallee said.
Most infractions are honest oversights, experts say. Federal law allows dependent children to be covered until age 26, but many parents don't know the law or forget.
Employees also sometimes mistakenly keep covering ex-spouses and former domestic partners who don't qualify as dependents. Former stepchildren aren't eligible, either.