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The University of California last summer found that 5 percent of dependents shouldn't be on their employees' plans. Removing them saved the system $35 million.

The UC system didn't offer amnesty, said spokeswoman Shelly Meron, and it didn't impose penalties on any employees with ineligible dependents on the rolls.

Recouping months or years of premiums paid by employers for ineligible dependents can be a difficult exercise, said Frost, the Aon Hewitt's eligibility expert.

"We see very few employers do that, less than 5 percent," Frost said. "It's just a very messy process to look retroactively and figure out the point at which someone should never have been covered."

And proving fraud can be a high bar to clear, said Dennis Jay, executive director of the Washington, D.C.-based Coalition Against Insurance Fraud.

"Most systems give the benefit of the doubt," Jay said. "For example, if someone gets divorced and keeps the ex-spouse on the plan when they shouldn't have, that's pretty innocent stuff."

CalPERS spokeswoman Rosanna Westmoreland cited a law that makes it a crime to improperly obtain a benefit -- including health insurance -- by making a false statement. Anyone convicted of that misdemeanor may be liable for paying reparations.

"So, if CalPERS discovers fraud as part of the audit, it will refer these matters to the appropriate district attorney for prosecution," Westmoreland said, and the system will seek restitution as part of sentencing.

Since launching the amnesty period last month, CalPERS subscribers have voluntarily removed 1,650 ineligible dependents. Of those, 1,220 were on state plans. School district employees and other public agency workers dropped a combined 430.

Their insurance costs averaged $4,400 per person per year -- twice the sum CalPERS originally estimated -- and equals $7 million in savings.

There's no doubt that many more ineligible dependents will turn up during the verification process, Frost said.

"The people abusing the system will think, 'I'll just keep my dependent covered for a while and wait until they catch up with me,' " Frost said. "The rest will honestly think, 'I'm not doing anything wrong, so I'll just ignore it.' "

Once the amnesty period ends next month, New York-based HMS Solutions will begin verifying dependent eligibility using documents such as joint tax returns or birth certificates that CalPERS will require subscribers to submit.

CalPERS has never audited its insurance rolls, so it had no history to lean on when it estimated roughly 4 percent of enrolled dependents aren't qualified for benefits. It used the experience of other public agencies such as the University of California and Alabama's state retirement system.

But the percentage can run much higher. In 2008, Milliman Inc. conducted an audit for an 8,000-employee firm. About 6,000 had dependents on the company health plan, employee benefits specialist Penny Plante wrote in a company article, and nearly 18 percent of them were ineligible.

Aon Hewitt "has seen results on the low end of 3 percent dropped and on the high end 30 percent dropped," Frost said. "In the vast majority of cases, people just don't understand the rules."

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