Diplomatic Relations: Reconsidering Spousal Coverage
The Affordable Care Act (ACA) doesn’t require spousal coverage — only coverage for dependent children. For this reason, as employers continue to grapple with high plan costs, many are reconsidering whether and how to offer health care insurance to their employees’ spouses.
The dollar savings are there for the taking. But many employees would likely frown on seeing spousal coverage suddenly become expensive or vanish entirely. So this isn’t only a financial issue; it’s also a diplomatic one calling for careful forethought.
Surcharges and carve-outs
Essentially, there are two established ways of saving money on spousal coverage: 1) rationalizing the expense through a cost-sharing surcharge, or 2) eliminating coverage altogether through a “spousal carve-out” policy.
Surveys suggest employers are increasingly willing to make these changes. A Society for Human Resource Management poll published recently found that about 7% had implemented a spousal surcharge plan, while 8% of employers had already adopted carve-out policies.
Other surveys have predicted that most employers will adopt spousal surcharges by 2018. It’s not likely a coincidence that this happens to be the former effective year of the ACA’s 40% “Cadillac tax” on high-cost health plans. Congress pushed it back to 2020 last year.
Big company moves
Several high-profile employers have already adjusted spousal coverage. Take package-delivery giant UPS, for example. In 2014, spouses of its office employees who had access to health coverage through their own jobs were no longer eligible for coverage in the company’s plan. At the time, UPS estimated that nearly half (45%) of the 33,000 affected employee spouses covered by the plan had access to coverage through their own employment. The 55% who didn’t were allowed to stay on the UPS plan.
“Limiting plan eligibility is one way to manage ongoing health care costs now and into the future, so that we can continue to provide affordable coverage to our employees,” the company explained at the time.
Employers that have opted to go the surcharge route generally haven’t been aggressive. Xerox, for example, added only $1,000 to an employee’s existing annual contribution for single coverage when it adopted the spousal surcharge in 2013.
So far, few employers appear willing to lower the boom on spousal coverage by eliminating it (also known as an “absolute carve-out”) — especially when spouses lack access to coverage through their own employers. Forcing workers’ spouses to seek coverage on the individual market, possibly at a very high cost, would likely embitter the affected employees, potentially increasing turnover. So it ultimately could cost the employer more than it saves.
But it doesn’t have to be an all-or-nothing proposition. One variation on the surcharge approach is to use a carrot instead of a stick. That is, give a monetary award to employees whose spouses switch from your plan to the spouse’s employer’s plan.
Or you could have a spousal carve-out program with an escape hatch. Such an arrangement would allow the spouse to remain on your plan if the price the spouse would have to pay for coverage under his or her own employer’s plan exceeds a specified threshold.
Still another middle-ground approach is to require employed spouses whose own employers offer coverage to enroll in those plans in order to receive benefits under your plan. This way, yours becomes the secondary plan, incurring only the portion of claims not covered by the spouse’s employer’s plan (the primary plan).
3 ways to verify
Should you establish any of these approaches (except the absolute carve-out), you’ll need to decide how to verify that an employee’s spouse doesn’t have coverage through his or her own employer. Here are three ways to do so:
- Employee affidavit. Your employee signs a statement certifying that his or her spouse is ineligible for other employer-sponsored coverage. Or, if you set other conditions for coverage under your own plan (such as an escape-hatch arrangement), the affidavit would certify that those conditions have been met. Employee honesty in completing these forms might be enhanced if you spell out penalties for failing to provide accurate information.
- Certification from the spouse’s employer. Assuming the spouse’s employer is willing to cooperate, its attestation that the employee spouse is ineligible for health coverage where he or she works is almost certainly going to be accurate. There’s no guarantee, however, that every spouse’s employer will be willing to fill out such a form or return it in a timely fashion.
- Eligibility audits. You can do spot checking of employee spouses’ lack of access to coverage by randomly picking staff members and contacting each spouse’s employer, rather than seeking verification in every case. This policy is administratively less burdensome and should keep employees honest, but it isn’t as secure as requiring universal certification.
Other compliance considerations
If you do opt for a spousal carve-out, you might be tempted to offer COBRA coverage to spouses departing from your plan. But it’s unnecessary to do so — loss of coverage under this scenario isn’t a COBRA-qualifying event. And even if you wanted to provide COBRA coverage, you could find that the spouse won’t be covered by your health insurance carrier or stop-loss provider. Thus, you could be left liable for any claims that do arise.
There are also considerations under the Health Insurance Portability and Accountability Act (HIPAA). Let’s say you implement a spousal surcharge and an employee’s spouse elects to switch to his or her own employer’s plan. If that change doesn’t occur during an open enrollment period, the spouse could be shut out. There would be no HIPAA special enrollment requirement.
On the other hand, say you establish a spousal carve-out in the middle of the year and an employee’s spouse must request enrollment in his or her employer’s plan. This would, under HIPAA, obligate the spouse’s employer to allow him or her to enroll.
Finally, be sure to determine whether your state’s insurance laws might restrict your ability to pursue any spousal coverage strategy. Similarly, look out for marital antidiscrimination laws that might be interpreted to ban restrictions on spousal coverage.
Unfortunately, there are no quick and easy ways to keep health care plan costs in check. But policies that ensure you aren’t paying the medical bills of employee spouses who could be getting coverage through their own employers are certainly worth contemplating. Ask your benefits advisor for help thinking it through.