Legal Clinic

Verifying Healthcare Eligibility

Employers are permitted to -- and frequently do -- require proof of marriage before providing healthcare benefits to dependents or spouses. But, in this era of increasing legalization of gay marriage and civil unions, the proof employers require must be the same for all married couples.

Monday, March 5, 2012
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Question: Is our company permitted to require employees to provide proof of marriage before adding a spouse to our healthcare insurance plan?

Answer: Yes -- employers generally may require proof of marriage before adding a spouse to the company health-insurance plan. In fact, employers may require verification, not only of spouses, but of all dependents.

Both employers and insurance companies are generally permitted to implement proof-of-marriage policies provided they act in conformity with federal and state law. The Employee Retirement Income Security Act "sets uniform standards to ensure that employee-benefit plans are established and maintained in a fair and financially sound manner." 29 USC §1144; see also United States Department of Labor, Health Benefits, Retirement Standards, and Worker's Compensation: Employee Benefit Plans, last updated September 2009.

ERISA expressly grants states the right to establish laws and regulatory agencies to oversee health-insurance companies and employer implementation of health-insurance plans. See ERISA § 514(b)(2)(A) (stating "nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.").

Employers should be sure to understand their state-insurance regulations, as rules may vary from jurisdiction to jurisdiction.

Since the economic downturn in 2007, and in light of new requirements under the 2010 Patient Protection and Affordable Care Act, also known as health-care reform, more and more companies are requiring employees to provide documentation before offering spouses and dependents health coverage. See, e.g., Bloomberg Businessweek, You've Got Dependents? Prove It, Nov. 26, 2007.

Document verification has become a popular tool for employers to manage increasing insurance costs. With more and more people finding themselves out of work and having greater difficulty obtaining health insurance, employers may be, in increasing numbers, unknowingly providing coverage to ineligible "dependents." Id.

Further adding to the cost of employer health plans is the fact that PPACA requires employers that offer coverage to child-dependents of their employees to provide that coverage until the employee's child reaches 26-years old. See Department of Labor, Young Adults and Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Families and Businesses, though employers should be aware that some states have even greater age requirements; New York and New Jersey, for example, have age requirements up to 30 and 31-years old respectively. See National Conference of State Legislatures, Covering Young Adults Through Their Parents' or Guardians' Health Policy, Sept. 23, 2010.

Clearly providing insurance for eligible defendants is costly. However, providing coverage for ineligible dependents only adds to an already substantial burden as healthcare costs typically comprise an employer's second-largest expense after payroll. Id.

To combat providing coverage to ineligible dependents, employers are, in greater numbers, auditing company healthcare plans and requiring employees to submit proof of marriage and proof of family relationships before extending coverage to dependents, according to the Bloomberg Businessweek article.

Audit companies report that between 10 percent and 18 percent of claimed dependents are, in fact, ineligible for health insurance. Depending on the size of a company, that can mean hundreds of thousands, if not millions in additional costs. Id.

Employees who are found to have violated insurance laws may find themselves liable for thousands of dollars in fines and even multiple years in prison for insurance fraud and larceny.

In a recent Alaska Supreme Court case, the ex-wife of an employee was found liable for fraud when she paid her ex-husband to represent her as his wife so that she could obtain coverage under his health-insurance plan. Asher v. Alkan Shelter, 212 P.3d 772 (Alaska 2009).

In addition to her personal liability, her husband was found liable for embezzling more than $100,000 and sentenced to prison.

Similarly, in a Connecticut Supreme Court case, the court sentenced an employee to two years' incarceration when she fraudulently claimed a boyfriend as a dependent spouse. State v. Nosik, 715 A.2d 673 (Conn. 1998).

These penalties are not out of the norm, and employers should be aware that conducting audits may subject their employees to severe liability.

Audits that uncover fraud, and impose significant liability on offending employees, may have a demoralizing effect on a workforce for obvious reasons. To avoid this problem, many employers provide amnesty periods for employees.

Both New York and Kentucky, for example, allowed employees to come forward, penalty free before conducting audits of their state employee-health-insurance plans. See NYSHIP Dependent Eligibility Project, Project Overview; see also, The Kentucky Employees' Health Plan Dependent Eligibility Verification Program, last updated Sept. 15, 2011.

Of course, employers are entitled to conduct audits without offering an amnesty period, but they should be fully aware of the consequences of engaging in such a practice.

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Proof of Marriage -- Types of Documentation

Regulatory agencies may determine what proofs employers may demand before providing dependents health coverage, or choose not to regulate such proofs at all.

The N.J. Department of Banking and Insurance, for example, states that "[t]he Department does not regulate how insurers determine that two persons are married." See The N.J. Department of Banking and Insurance, Questions and Answers on the Domestic Partnership Act, 2008.

But documentation requirements generally range from simple verification affidavits, to marriage licenses coupled with current joint-tax returns. For child-dependents, employers often request original birth certificates.

Employers should also keep on eye on the legal developments pertaining to same-sex marriage.

With civil unions and same-sex marriage becoming more prevalent, employers must make sure dependent-verification procedures are not discriminatory in their implementation. While Title VII does not afford sexual-orientation or marital-status protections, the statute does forbid disparate treatment of protected classes of individuals. Title VII of the Civil Rights Act of 1964, 42 U.S.C.A. § 2000e.

State statutes offer similar protections, and many broaden the scope of protected classes. Employers in jurisdictions recognizing same-sex marriage or civil unions, for example, may not require domestic partners in a lawful civil union to provide proof of their union if they do not require proof of marriage from spouses as such a practice would likely violate state anti-discrimination laws.

In California, for example, employers are required to treat spouses and domestic partners equally in both the provision of benefits and in any demand for proof of dependent status. See Human Rights Campaign Domestic Partner Benefit Eligibility: Defining Domestic Partners and Dependents; see also California Fair Employment and Housing Act, Cal. Gov. Code § 12900 et seq.

That is, if an employer provides health-insurance benefits to spouses and requires only marriage license to verify marital status, the employer must provide coverage for domestic partners and may not impose any additional burden, such as requiring both a marriage license and a current tax return. Id.

Take Away

Employers adopting policies requiring proof of marriage before providing health benefits should inform employees of both the policy and consequences of non-compliance. And employers should be sure to enforce proof of marriage policies equally for all employees.

Keisha-Ann G. Gray is senior counsel in the Labor & Employment Law Department of Proskauer in New York and co-chair of the Department's Employment Litigation and Arbitration Practice Group.

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