Report: Dumping Spousal Coverage May Not Save Money
A new Employee Benefit Research Institute report says employers may end up spending more money on healthcare coverage if neighboring employers dump their more-costly spouses onto their plans.
By Katie Kuehner-Hebert
Employers looking to lower their healthcare costs by dumping spouses off their insurance plans may not necessarily save money, according to a recent report by the Employee Benefit Research Institute in Washington.
While the Patient Protection and Affordable Care Act mandates employers with 50 or more workers to provide health coverage to workers and dependent children under 26, employers don't have to cover spouses -- who often cost more than other plan participants, the EBRI study finds.
This might tempt employers to force spouses to accept their own employers' health coverage, but according to the EBRI report, other employers may force even more costly spouses back onto them.
"Simply eliminating spousal coverage may not save you money - the devil is in the details, and it may not save you money at all," says Paul Fronstin, director of EBRI's health research and education program and author of the report.
According to the report, spouses who are employed by others likely have lower healthcare spending than non-working spouses, and that employers with net reductions in covered spouses may therefore witness a worsening in average risk, resulting in higher spending than expected.
In 2011, primary health insurance policyholders spent an average of $5,430 on healthcare services, compared with $6,609 for spouses, according to the EBRI report. Employers subsidize employee-only coverage more than they subsidize family coverage. As a result, employers pay an average of $4,095 toward the cost of spousal coverage, and $4,453 per worker. Were the employer to experience a situation in which a new employee joined the plan for each spouse that dropped off the plan, instead of paying $4,095 per spouse, they would pay $4,453 per worker that joined the plan.
But before employers consider dumping spousal coverage, they must first ask themselves why they are offering such coverage in the first place, Fronstin says.
"That's the key question," he says. "Is it to keep them competitive in the labor market? Is there a concern that they are not going to get the right employees if they don't have a successful benefits program by dropping spousal coverage? That's the real cost of business."
When considering whether to dump spousal coverage or at least charge workers more for their spouses to be covered, companies need to also assess the makeup of their workforce, says Helen Darling, president and chief executive officer of the National Business Group on Health in Washington.
"For example," she says, "we know that women generally are more likely to take a job based on the type of benefits for their families, whereas men are more likely to take a job based on the cash wages. So it's not unusual for a family man who works in construction to take a certain job because he can make more money and not for the type of benefits associated with that job. But his wife might get a part-time nursing job because of the type of benefits that are offered."
Some companies might find that surcharges could backfire, particularly as those in tight labor markets that need workers for call-center positions, who tend to depend more on their benefits than [their] wages, Darling says.
Still, many experts believe spousal surcharges to be reasonable, as spousal coverage typically costs employers more money, she says. But when adding such a surcharge, employers should also consider the types of coverage the spouses would be forced to take under their own employers, including substandard mini-med plans that offer much less coverage. And what if spouses lose their healthcare plans? Can they come back to the initial employer's plan at no charge if they lose their healthcare and/or their job?
"Just even explaining that to people could be tough," Darling says. "There are a lot of concerns that employers need to think about before making this decision."
Some experts believe employers could benefit in other ways by considering these ideas.
Employers considering either a spousal surcharge or eliminating spousal coverage altogether should communicate to employees how this may positively affect their own healthcare plans, says Dan Johnson, vice president at Trustmark Insurance in Lake Forest, Ill.
"It could help the employers better contribute to the healthcare plan, so premiums and deductibles wouldn't be so high -- or it could enable the employer to just continue offering the plan altogether," Johnson says. "Doing this creates a responsibility for employers to explain to employers why they are doing this, and how it could affect the actual plans."