Why your boss is dumping your wife

Companies are dropping health coverage for spouses to cut costs

By Jen Wieczner | Marketwatch

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 their plans, a sum that jumps to $65 in 2014. And
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, last year, 6% of
large employers excluded spouses, 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. 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,”
Darling says. HMS, a company that audits plans for employers, estimates
that nearly a 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 spouses.

But when employers drop spouses, they often lose more than just the one
individual, when 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 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’s covered spouses cost 50% more than crewmembers themselves,
according to the airline’s online Q&A about its health plan, which
this year extended wellness incentives to spouses for the first time.

About a fifth of companies had policies to discourage spouses from
joining their health plan 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 generics maker Teva and supply chain manager Intermec
have spousal surcharges costing $100 a month, or $1,200 annually, while
Xerox charges $1,000 for the year. See: 10 things your office won’t say

But experts say more firms 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.

Firms that recently decided to drop spouses from their plans range from
private insurance agencies to school systems and universities like Ball
State, as well as large companies like pump and valve manufacturer
Flowserve. Wisconsin-based furniture company KI 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 who allow spouses in their plan but don’t pay for
any part of it rose from zero to 3% this year, according to human
resources consulting firm Towers Watson. Northrop Grumman, the large
security firm, 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 plan, though insurance experts
say 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 like 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, 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,” 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 which plan to
insure the kids under, 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. 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 announcing its spousal
carve-out, Ball State University, for one, warned employees to prepare
“since this is a potentially life-changing event.” The university
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.”