Paying for insurance but having coverage?

My husband works for the town where we live currently. Since the beginning he's had many issues with insurance. We have a 16 month old son and it took over 3 months when he was born to straighten out his insurance, it took calls above the town and to the state to get things rolling - he was told a number of times that it was done and it wasn't. Then they started charging employees who had family coverage - it's a small amout but the only way for me and our son to be on the insurance plan. It's to cover medical, prescription and dental.
We recently went to the dentist with our son for his 1st visit and becuase he chipped a tooth and found out my husband has been paying for family coverage but we do not have coverage. Now for 3 days he's been getting the run around about getting coverage and was told that they put the papers through but only dated since August 1, 2007 - but what about all the time he was paying for this for the past year?
Please bear in mind that this is a town with many financial woes and "accouting irregularities" - people have been arrested for stealing money from the finance dept ect, it's taken them a whole year to get there 3% contracted raise and such. My question is - is this legal? He also has a semi-union more of an association - and they have advised him that he's in the right to file a greivance but that he needs to be prepared for backlash etc.
If anyone coudl point in the right direction, we'd appreciate it. I just don't think when you contribute, you should be told that it is our fault and that we should have checked to see if he had coverage before we took him anywhere and that we should just file it on our medical insurance instead.

Is your question "Is it illegal to take the payments and not provide insurance coverage"? You would probably have to prove that it was done as a type of fraud and they were pocketing the money. They will probably say it was an accounting error or something, not done intentionally. Can you contact the insurance company directly? Do you have documentation of the payments being made or deducted from your paychecks from the start to current time frame. You may need to make copies and send to the insurance company after you talk to a represenative and find out what you need to do to straighten this out once and for all. Also if you ended up paying for services that should have been covered by the insurance make copies of that and attach with your insurance payment documentation to see if you may be reinbursed. you may need to talk to two or three or even more at the insurance company...just keep going up the chain of command until you find someone willing to help.

That's exactly it - the payments have been deducted and we do have proof along with the claim payment and everything. My husband was told that he should NOT contact them cause it cause problems for him and that chain of command is for him to go through the administrator but I'm going to contact them anyway.
Thanks for the tips!