On its face, the idea of cutting spouses out of employer health care plans sounds like a good cost-cutting move. The Employee Benefit Research Institute, however, says not so fast.
A decision by United Parcel Service late last year to eliminate health benefits for spouses who were eligible for coverage through their own employer drew national attention. EBRI went so far as to say it could have been a “tipping point” in employment-based health benefits, in part due to provisions in the Patient Protection and Affordable Care Act.
UPS cited the new law as a reason for its policy change, saying, “since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer.”
As of 2012, 7 percent of employers did not cover spouses when other coverage was available to them, while 4 percent of employers with 1,000 or more employees reported not providing such spousal coverage. As of late 2012-early 2013, another 8 percent of large employers were reporting that they planned to exclude spouses from coverage when other coverage was available.
EBRI’s study documented that spouses, on average, cost more to cover than otherwise comparable policyholders. That’s why spousal coverage can be an easy a target for employers seeking to lower their health care costs.
But EBRI said not covering spouses may have “unintended consequences” for employers.
It said that, while employers may save money in the short run by eliminating working spouses from their plan, they may over time find themselves covering employees who were previously covered by a spouse under another plan.
And that, in turn, means employers might find themselves paying more in health care plan subsidies.
That’s because companies offset the cost of employee-only coverage more than they subsidize family coverage. According to a survey last year, workers paid 18 percent toward the cost of employee-only coverage and 29 percent toward the cost of family coverage.
In dollar terms, that meant workers paid an average of $996 that year toward employee-only coverage and $4,560 toward family coverage. The total health plan cost that year for an employee was $5,430. Employers picked up $4,453 of that amount.
For a married couple, the total cost was $12,039; $6,609 attributable to the spouse. With couples picking up 29 percent of family coverage, that left the employer paying $4,095 for spousal coverage.
Now, were the employer to see a jump in enrollment among workers who previously found coverage under a spouse’s plan, they would find themselves paying $4,453 per worker instead of paying $4,095 per spouse.
And that is what EBRI means by “unintended consequences.”