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Spousal-Coverage Shifts Could Have Unexpected Consequences
Your employee's spouse being some else's covered employee works both ways

By Stephen Miller, CEBS  1/27/2014

Companies looking to pare health costs by requiring working spouses to get health insurance through their own employer may discover this trend has unexpected consequences, as what goes around comes around, according to a new study by the nonprofit Employee Benefit Research Institute (EBRI).

The study report, The Cost of Spousal Health Coverage, was published in the January 2014 EBRI Notes.

The Affordable Care Act (ACA) requires organizations with 50 or more full-time equivalent workers to provide health coverage to full-timers and their dependent children until they reach age 26. It does not, however, require employers to provide coverage to spouses, whether or not they are eligible for other health insurance. The EBRI analysis, which quantifies the cost of spousal health coverage, found that spouses, on average, cost more to cover than otherwise comparable enrollees—which makes them a target for employers looking to control their health benefit costs.

Redefining the Commitment to Dependents

 

In Place in 2013

Planned for 2014

Increase employee contribution in tiers with dependent coverage at higher rate than single coverage.

42%

19%

Use spousal surcharges (when other coverage is available).

20%

13%

Expand number of coverage tiers.

15%

9%

Require spouses to purchase health insurance through their employer plan before enrolling in your health plan.

7%

11%

Increase employee contributions per each dependent covered.

5%

10%

Exclude spouses from enrolling in your health plan if similar coverage is available through their own employer.

4%

8%

Eliminate/don't offer subsidy for spousal coverage (provide access only).

1%

4%

Source: Towers Watson 2013 Reshaping Health Care survey report, cited in EBRI's The Cost of Spousal Health Coverage.

Lose Some, Gain Some

But as some businesses adopt new rules to exclude health coverage for spouses (typically if they can obtain health coverage through their own employer) or increase spousal surcharges (see table, above), they may end up inheriting new participants as other companies adopt the same restrictive rules.

“While ‘first mover’ firms may save money in the short run by eliminating working spouses from their plan, they may in time gain the responsibility for covering employees who were previously covered as a spouse under another plan, now left without that coverage by other employers implementing the same strategy of eliminating access to health coverage for their workers’ spouses,” explained report author Paul Fronstin, director of EBRI’s health research and education program. “Ultimately, savings over the long term will depend on each firm’s composition of couples and their respective employment statuses.”

Individual vs. Family Coverage

The key cost driver addressed by the study is that employers subsidize employee-only coverage more than they subsidize family coverage. According to a recent Kaiser Family Foundation survey cited in the EBRI report, in 2013 employers paid 82 percent toward the cost of employee-only coverage and 71 percent toward the cost of family coverage.

Were employers to experience a situation where a newly enrolled employee (say a worker who had previously been covered as a spouse under another employer’s plan, now refused coverage) joined the plan for each spouse that dropped off the plan, then “instead of paying $4,095 per spouse they would pay $4,453 per worker that joined the plan” (using average employer subsidies and average spending), Fronstin noted. “The strategy of not covering spouses who are employed may have unintended consequences for employers.”

Given that the spending reductions from excluding spouses could be immediate, while the long-term likelihood of higher costs when others do the same remains abstract, it's unclear that this scenario would cause employers to reconsider limiting spousal coverage. But those who adopt such a policy should be prepared to see their short-term savings dissipate over time.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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