Companies have a new solution to rising health-insurance costs: Break up their employees’ marriages.
(Market Watch) - By denying coverage to spouses, employers not only save the annual premiums, but also the new fees that went into effect as part of the Affordable Care Act. This year, companies have to pay $1 or $2 “per life” covered on their plans, a sum that jumps to $65 in 2014. And health law guidelines proposed recently mandate coverage of employees’ dependent children (up to age 26), but husbands and wives are optional. “The question about whether it’s obligatory to cover the family of the employee is being thought through more than ever before,” says Helen Darling, president of the National Business Group on Health.
While surcharges for spousal coverage are more common, last year, 6% of large employers excluded spouses, up from 5% in 2010, as did 4% of huge companies with at least 20,000 employees, twice as many as in 2010, according to human resources firm Mercer. These “spousal carve-outs,” or “working spouse provisions,” generally prohibit only people who could get coverage through their own job from enrolling in their spouse’s plan.
Such exclusions barely existed three years ago, but experts expect an increasing number of employers to adopt them: “That’s the next step,” Darling says. HMS, a company that audits plans for employers, estimates that nearly a third of companies might have such policies now. Holdouts say they feel under pressure to follow suit. “We’re the last domino,” says Duke Bennett, mayor of Terre Haute, Ind., which is instituting a spousal carve-out for the city’s health plan, effective July 2013, after nearly all major employers in the area dropped spouses.
But when employers drop spouses, they often lose more than just the one individual, when couples choose instead to seek coverage together under the other partner’s employer. Terre Haute, which pays $6 million annually to insure nearly 1,200 people including employees and their family members, received more than 20 new plan members when a local university, bank and county government stopped insuring spouses, according to Bennett. “We have a great plan, so they want to be on ours. All we’re trying to do is level the playing field here,” he says.
While couples generally prefer to be on the same health plan, companies often find that spouses are more expensive to insure than their own employees. That’s because, say benefits experts, covered spouses tend to be women, who as a group not only spend more on health care, but also have more free time to go to the doctor if they don’t work. Indeed, JetBlue’s covered spouses cost 50% more than crewmembers themselves, according to the airline’s online Q&A about its health plan, which this year extended wellness incentives to spouses for the first time.
About a fifth of companies had policies to discourage spouses from joining their health plan in 2012, according to Mercer, though most just charged extra—$100 a month, on average—to cover spouses who could get insurance elsewhere, rather than deny coverage entirely. Indeed, large firms including generics maker Teva and supply chain manager Intermec have spousal surcharges costing $100 a month, or $1,200 annually, while Xerox charges $1,000 for the year. See: 10 things your office won’t say.
But experts say more firms are likely to drop spouses altogether, whether they work or not—especially when the new federal health-care exchanges open in 2014, providing an alternative for spouses left out in the cold. “When there’s a place for people to go, employers won’t feel as beholden or compelled to cover the spouse,” says Joan Smyth, an employee benefits consultant with Mercer.
Firms that recently decided to drop spouses from their plans range from private insurance agencies to school systems and universities like Ball State, as well as large companies like pump and valve manufacturer Flowserve. Wisconsin-based furniture company KI carved out spouses this year when couples flocked to its plan for the first time during open enrollment. “Now, each employer is responsible for its own employee,” says Timothy Van Severen, corporate risk manager for KI, which insures about 1,700 employees in its health plan. “We were going to see a higher claim cost if we didn’t do that, because of the migration coming back to us.”
Some companies drive spouses away using other tactics, such as making spousal coverage prohibitively expensive through higher surcharges or by making reimbursement rates so low that spouses can’t afford the plans. The share of employers who allow spouses in their plan but don’t pay for any part of it rose from zero to 3% this year, according to human resources consulting firm Towers Watson. Northrop Grumman, the large security firm, will cover spouses who can get insurance through their own employers, but only if they first enroll in their own plan, and use Northrop’s as secondary coverage. (Some companies actually pay spouses an incentive if they enroll in their own plan, though insurance experts say the incentive is a waste of money—and that employers would do better by just cutting spouses off.) “You’re making it kind of a no-brainer for the other adult dependent to get on his or her own plan,” says Helen Darling, president of the National Business Group on Health. “No one wants to be just a dependent magnet.”
But like any breakup, the separation of spouses into different health plans can be traumatic for families. Greg Fischer, a vice president in the employer solutions division at HMS, says demand has increased for the company’s dependent audits, which have revealed that 3% of spouses are ineligible for the health plans, either because of plan rules or divorce and legal marriage issues. The news can be upsetting to couples when one partner is forced to pay more for coverage or accept lesser benefits: One spouse may even have to stop seeing the family doctor if his or her new plan stipulates a different set of providers. “I think that’s where the pain point comes in for the employee—that their spouse may have to be covered under a different plan, or their benefits might be reduced,” Fischer says.
Couples then have to decide whether to stick together, even if it means losing benefits, or to split up so at least one spouse maintains coverage. If they separate, they may also have to choose which plan to insure the kids under, or whether to use different plans for each. “It certainly makes the family unit have to do some real soul-searching and figure out what works best for them,” says Karen McLeese, vice president of employee regulatory affairs for CBIZ Benefits & Insurance Services. The decision, she adds, will likely come down to dollars and cents.
For their part, employers say they try to educate employees on their options well in advance of the change, and health plans or insurance brokers sometimes step in to guide people through the transition and help them find doctors in their new network. In announcing its spousal carve-out, Ball State University, for one, warned employees to prepare “since this is a potentially life-changing event.” The university employee benefits staff worked with spouses and their employers to guide them through the transition onto their own plan, and have even allowed some spouses with “uncooperative” companies to stay on “until the conflict is resolved,” says Joan Todd, a spokeswoman for the university. “We wanted to be very careful that no spouse would lose coverage before they could be placed on their own employer’s plan.”