“When United Parcel Service (UPS) announced a major change in spousal insurance coverage, it was the shot heard ’round the benefits world.
“I have been talking about working spouses with access to their own health insurance for more than 10 years,” says Scott Snow, president of S.M. Snow & Associates Inc. in Berlin, Mass. “I was ahead of my time, and now it’s catching up with me. It’s a hot topic.”
And in his opinion, the Patient Protection and Affordable Care Act lit the match.
“Since the enactment of PPACA, employers are a lot more desperate for any way to squeeze savings out of their health plans,” he says. “Employers can’t continue to see costs going up 8 or 9 percent each year.”
Although UPS is not the only company to revise its spousal coverage policy, its decision may represent a tipping point. In a memo to employees, management announced it would discontinue coverage for the 15,000 working spouses who are eligible for insurance through their own employer.
UPS expects the annual increase in its health care expenses to rise from 7 percent to 11.25 percent because of mandatory coverage for dependents up to age 26 and new fees required by PPACA (spousal coverage is not mandated). “We are making these changes to offset cost increases due to the (law),” the memo said.
Denying coverage to spouses saves employers not only the cost of premiums, but also PPACA’s $65 fee for each person covered. The fee will help the U.S. health care system accept people who previously were uninsured, according to the Department of Health and Human Services.
Good place to trim?
Spousal coverage also is an inviting target because statistics show that spouses tend to use the health care system more frequently and incur greater expenses. Last year, insurance plans paid an average of $5,540 in medical claims per spouse; $4,088 for employees; and about $2,000 for children and other dependents.
“Over time, employer subsidization of spouses and dependents has decreased and will continue to decrease,” says Steve Wojcik, vice president of public policy for the National Business Group on Health in Washington. “Our research attributes this to the growing cost of health care and the fact that other insurance options for spouses are available under PPACA.”
Two main strategies are available to help businesses hold the line on costs:
Carve-outs. Spousal carve-outs, or working-spouse provisions, generally prohibit people who can obtain coverage from their own job from enrolling in their spouse’s plan. This is the approach UPS is taking. “We believe your spouse should be covered by their own employer — just as UPS has a responsibility to offer coverage to you, our employee,” its employee memo reads.
Surcharges. Twenty percent of nearly 600 large employers in a 2013 Towers Watson survey have implemented a spousal surcharge. Nearly 33 percent plan to do so by next year. These surcharges average about $100 a month, or roughly double what they averaged a couple years ago.
Businesses have other options, Snow says, such as increasing deductibles or co-pays for spouses. Wojcik agrees.
“Carve-outs and surcharges are the main options,” Wojcik says, “but employers can move to different tiers of benefits, such as the employee and one dependent. Another option is to eliminate spousal coverage altogether or offer it only if the employee pays the full cost, but that is pretty rare.”
Human costs
Snow recommends evaluating the impact on employee morale and intention before making a change. “If you are in an industry that has a hard time attracting employees and a competitor offers a better health plan, it can give them an advantage,” he said.
Changing insurance can be distressing to some employees and their families. Even if both spouses have access to employer coverage, they likely have different carriers, restrictions, provider networks and reimbursement rates. One partner may pay more for coverage or have lower benefits, and couples also will have to decide where to enroll their children.
Experts advise human resources professionals to notify and educate employees well in advance of any changes. They also recommend working with insurance brokers or other professionals to smooth the transition and help spouses find physicians in the same network.
“If you plan to go down this road, first make sure you have the buy-in of your company’s leadership,” Wojcik says. “Second, explain to employees exactly what you are doing and why. Whatever you do, phase it in over time.”
This is a good time to think outside the box, Snow says.
“I am very interested in strategies to make health care affordable for all employees,” he says. “For the last 20, 30 or 40 years, employers have paid 70 or 80 percent of the premium. Now they continue to move costs to employees in higher co-pays or deductibles. It hurts the lowest paid employees the hardest.”
He suggests building more flexibility into the system.
“Offering the same health plan for all employees just doesn’t work,” he said. “Companies should base employee contributions on salary or job level. Another strategy is to offer multiple health plans. Instead of just a Cadillac plan, also offer a Chevrolet plan.”
Wojcik encourages businesses to be ready when the media ask why they are removing spouses from their health plans.
“First of all, get the facts straight and tell the truth about what you are doing,” he says. “The bottom line is that spouses have coverage available elsewhere or can pay more money to stay on the employee’s plan.”
Of course, the first priority of every business is to make a profit, and restructuring spousal insurance coverage is low-hanging fruit. This requires making hard decisions that balance the needs of both employees and the employer, Snow says.
“Everything today is about cost control,” he says. “The biggest mistake businesses make is that they play at cost control, but they don’t put their heart and soul into it.”