--Companies don't want the expense of providing health-insurance
coverage for spouses
--Spouses 'encouraged' to move to their own employers'
health-insurance plans
--New health-care exchanges seen lessening the need for firms to
provide spousal coverage
By Jen Wieczner
Companies have a new solution to rising health-insurance costs:
Break up their employees' marriages.
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 its plans, a sum that jumps to $65 in
2014. In addition, 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, 6% of
large employers excluded spouses in 2012, 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, a unit
of Marsh & McLennan Cos. (MHC). 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," Ms. Darling says. HMS Holdings Corp. (HMSY), a company
that audits plans for employers, estimates that nearly one-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 coverage of
spouses.
But when employers drop spouses, they often lose more than just
the one individual as 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 Mr. 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 Airways Corp.'s (JBLU) covered
spouses cost 50% more than crewmembers themselves, according to the
airline's online question-and-answer section about its health plan,
which this year extended wellness incentives to spouses for the
first time.
About one-fifth of companies had policies to discourage spouses
from joining their health plans 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 generic-drugs
maker Teva Pharmaceutical Industries Ltd. (TEVA, TEVA.TV) and
supply-chain manager Intermec Inc. (IN) have spousal surcharges
costing $100 a month, or $1,200 annually, while Xerox Corp. (XRX)
charges $1,000 for the year.
But experts say more companies 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.
Companies that recently decided to drop spouses from their plans
range from private insurance agencies to school systems and
universities such as Ball State, as well as large companies such as
pump and valve manufacturer Flowserve Corp. (FLS). Wisconsin-based
furniture company KI Inc. 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 which allow spouses
in their plan but don't pay for any part of it rose to 3% this year
from zero previously, according to human-resources consulting firm
Towers Watson & Co. (TW). Global defense contractor Northrop
Grumman Corp. (NOC) 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
plans, though insurance experts say that 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 as with 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
Holdings, 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," Mr. 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
under which plan to insure their children 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, a unit of CBIZ
Inc. (CBZ). 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
disclosing its spousal carve-out, Ball State University, for one,
warned employees to prepare "since this is a potentially
life-changing event." The university's 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."
Write to Jen Wieczner at AskNewswires@dowjones.com.
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